Coffee can portfolio stocks

Under the investment philosophy heading on this site I briefly touched on the coffee can investing approach.

To help myself stick with this method I thought I would jot down some notes on a stock I feel might be suitable to this method. The valuation looks cheap, and management seem capable. I think there might be some tailwinds that I want to leave the stock alone for a long time to see if the come about. My notes here might teach me to be patient with it. For balance I shall note some risks also after these potential tailwinds. The stock is Shaver Shop, (ASX:SSG). It has been a roller coaster ride so far like with many small cap stocks dealing with COVID-19 volatility. I bought it around 50 cents late last year. I think as I write today around 60 cents it still is reasonable value.

Tailwinds?

• Online sales growth
• Catering to females. Over half the customers coming into SSG are female. It is more in recent years that this opportunity has dawned on management. A long time ago they could come into a store to buy a gift for a male and there wasn’t much to look at for them. Now stores have invested more in catering to female needs.
• In relation to the prior point, they have already invested in freshening up the look of the stores which was already producing results.
• In terms of men, there is a growing trend of acceptability for them to take more care about how they look.
• In the age of social media you could argue the younger generations coming through are more conscious of acceptance from peers and therefore of how they think about their appearance.
• Consumers are more likely to go to speciality stores for  certain niches. The days of buying specialised products from a big general department store like many of SSGs competitors might be becoming a thing of the past. A few years ago SSG’s key competitors were Myer, Target, K-mart, Harvey Norman, Big W.
• Plenty of room for store roll outs. Especially in terms of the NZ opportunity.
• They can be more strategic in the stores they decide to keep as online sales become a greater percentage. Could some lower performing stores cease without much affect to top line revenue, but achieve major cost savings?
• Due to Covid-19 they might be in a better bargaining position cost wise in terms of their stores and lease agreements.
• Their product exclusivity range, and recent surge in their digital customer base, may offer good protection to the threat of competition from a big player eg Amazon. SSG’s brand is worth something in that regard.
• SSG is arguably not as vulnerable in an economic downturn compared with many retailers. Some of their product range can be viewed as saving money versus competition from visiting salons.
• Technology enhancements may act as a tailwind in terms of the above point. i.e. new products come into play that can favour DIY treatments.
• Covid-19 may have fast tracked this theme of DIY, rather than visiting salons.
• Covid-19 may have also fast tracked their online customer base. Many will be new customers, and also repeat customers in the future.

RISKS

Poor customer reviews have been seen recently, so customer experience and servicing is a risk to monitor. I haven’t always found it that much of a reliable guide with my experience in other retail stocks though. SSG has good long term reviews but seems like the pressure around the big uptick in online demand during covid lockdown resulted in some unpleasant customer experiences.

Other competitors such as Amazon /Kogan especially in terms of online growth could be a worry. Despite their presence though SSG seem to be generating good growth. Would be nice if SSG could even trade at half the multiple of KGN! Their brand and product exclusivity agreements might be the key here. Yet there is also a risk they don’t manage these exclusivity agreements well.

General headwinds in the Australian economy are a risk like with any retailers. SSG haven’t been affected yet by such concerns the last few months. Some could view DIY treatments cheaper versus salons when economic times are tougher.

The management “skin in the game” issue might be subjective. Some might not like how they cashed out in the IPO to some extent. Having said that they still own plenty of stock today.

Their sales could be linked to fashion trends in the future. This could potentially see some of their product range experience medium term volatility amongst changes in consumer’s preferences.

Investing in retail can see a phase in the future where the growth becomes more mature. That tailwind of new store expansion can eventually slow down.

Disclaimer

DYO research, I make many mistakes and this stock may not be appropriate for you. As I said I also plan to own it a long time so I am not concerned about volatility. This year has shown though it can be extremely volatile! It is also small and it times not very liquid. Hence I thought I might write some notes down here as this site gets close to zero views so I am not ramping it!