With the pandemic fading into the rearview mirror, there has been a reluctant, but irrefutable move back to the office and back to school. But, if you’ve been to a classroom recently, you may have noticed a change from when you and I were sitting behind a school desk. Everything seems to have wheels on it.
This lends itself to the “breakout group” learning environment that is a staple of today’s classroom. And the country’s largest distributor of mobile furniture, including desks, chairs, and tables, is a public company, Virco Manufacturing (VIRC – Get Rating).
And Virco is benefitting from the post pandemic return to work/school, as well as the mobile nature of not only school but many offices these days. A new hybrid schedule for many employees has led to a boom in office design that favors the ability to “construct” and deconstruct an office environment suitable to the personalities (and number) of those in the office on any particular day.
Virco has been taking advantage of this mobile renaissance, and recent quarterly results based on back to school sales were exceptionally strong. The company reported revenue increased 30% YoY in the quarter, and gross margins popped 7% to 45.3%, partially due to easing inflation in the commodities market, reducing the input prices for Virco products.
Given the return to school/work tailwind, the stock is only trading at 4.3x earnings, 4.7x projected earnings, and 0.44x sales. This seems a very low valuation for a company with a recurring revenue model that is in the sweet spot for a new way of school and work interaction.
Adding to Virco’s advantages, its U.S. base has given it a leg up on foreign competitors. Virco CEO and Chairman Robert Virtue said: “We performed exceptionally well in this year’s back-to-school season. We had a record backlog of deliveries to make… As schools have extended their instruction calendar to make up for pandemic-related learning loss, our summer delivery window has effectively been narrowed.”
But, that narrow window became an advantage, as Virtue explained, “We have the physical footprint and the operating know-how to make and deliver millions of pounds of furniture in what is now a six- to eight-week delivery season. This environment has been increasingly challenging for import-based competitors. We are seeing a meaningful gain in new customers in this new competitive landscape.”
In our POWR Rating system Virco has an overall B rating, but knocks it out of the park in the Sentiment component, where it is rated above 99.18% of all the stocks we track. This tracks well with the developing mobile story we’ve been discussing.
Through a combination of execution, and being the right manufacturer with the right product at an inflection point in school/work office furniture mobility, Virco is an under $10 stock that appears undervalued here just below the $7 level.
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