MasterCraft: Fundamentals Intact amid Share Buyback

Stock Market

The Mastercraft Boat Company (MCFT) designs manufactures, and markets recreational powerboats.

Its product line includes boats designed for racing, luxury, and general recreation. I’m bullish on the stock. (See MCFT stock charts on TipRanks)

Economic Support

The U.S. economy is entering a stage where personal income is rising, but inflation keeps on growing.

Mastercraft is a Veblen good; one whose consumption actually increases with higher prices, as consumers are attracted to exclusivity.

The U.S. retail sector has performed well this year, especially during recent earnings releases, but that’s about to change. Per capita real GDP is predicted to decrease, while increases in spending are expected from a wealthy select few. This is an encouraging sign for a company such as Mastercraft.

Earnings & Shareholder Value

Mastercraft crushed its Q3 earnings expectations, with a revenue beat of $9 million, and an EPS beat of $0.29. For Fiscal Year 2021, MasterCraft’s consolidated net sales growth is expected to reach 40%, with adjusted EBITDA margins reaching 17%, and adjusted EPS growth around 120% year-over-year.

Although MasterCraft doesn’t pay dividends, it has decided to embark on a three-year share-repurchase program of $50 million. This could positively affect the stock price.

Valuation Metrics

Mastercraft is significantly undervalued. Its P/E ratio trades at a 24.15% discount to its sector, while its price-sale and price-cash flow ratios trade at sector discounts of 14.35% and 29.22%, respectively.

From an absolute valuation vantage point, we can expect the stock to rise significantly. By using a price multiple (PE in this instance) and multiplying by the expected EPS 12-months from now (3.51), we’ll likely arrive at $46 per share, and this is excluding the scheduled share buyback.

Wall Street also anticipates upside for the stock, with a Moderate Buy rating assigned, based on two Buys and one Hold. The average MCFT price target of $37.67 implies 45.6% upside potential to current levels of trading.

Final Word

Looking at the year ahead, Mastercraft is in a popular line of business.

Valuation metrics indicate that Mastercraft is undervalued, and stock repurchases will likely lead to higher stock prices. Investors can’t go wrong with Mastercraft, but should bear in mind that this is a stock with a market cap of only $490.25 million, which presents an excessive amount of risk.

Disclosure: On the date of publication, Steve Gray Booyens had no position in any of the companies discussed in this article.

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