Goodfood Market Corp (TSX:FOOD) received words of praise from analysts at Stifel and Canaccord today but neither broker has put the online meal kit delivery business on the ‘Buy’ list just yet.
However, both brokers did increase their price target for the company to C$0.60 from C$0.52 following its first quarter results, and this helped support its shares which rose 5.45% to C$0.58 on Wednesday afternoon.
Canaccord noted that Goodfood's 1Q EBITDA loss of $2 million was ahead of the $3 million loss forecast but was below the consensus expectation of $1 million, while revenues of $47 million were 39% lower than last year.
READ: Goodfood Market taking ‘meaningful steps toward profitability' but debt worries persist, Canaccord says
The results reflected management’s focus on targeting profitable customers, with Stifel's analysts noting: “profitability metrics improved significantly with gross margins reaching a record 36.9%.”
It was this push toward profitability that attracted Canaccord’s attention.
“What’s become clear over the last several quarters is: 1) the company’s intention to ensure future growth is profitable, and 2) the gap to such profitability (on an EBITDA basis) has considerably narrowed," they wrote.
“We therefore come away from the quarter incrementally positive on Goodfood’s outlook, though a consistent track record of meaningful free cash flow generation is needed, in our view, before taking a more bullish stance.”
Stifel agreed. “Despite these improvements, we remain on the sidelines," they said.
“The company is still in cash burn mode amid a potential recession, which could further impact demand for its offering” the analysts continued.
Both brokers reiterated ‘Hold’ ratings.
Canaccord said its revised price target represented 0.6x its fiscal year 2023 sales estimate of $178 million which is in line with its meal-kit provider peer group at 0.6x.
The broker anticipated investors will be unlikely to reward the stock with a higher multiple until the company can demonstrate consistent, profitable growth in its meal-kit business and that it has ample capacity on its balance sheet to fund operations.
Stifel concluded: “We see limited catalysts for the stock near term and would wait to see a stabilization in cash flows before reconsidering our stance.”
Contact Jeremy at jeremy@proactiveinvestors.com