Aterian (NASDAQ:ATER) is an interesting retail play that has been severely impacted by the global shipping crisis. As a result, its finances have suffered and ATER stock is down. But this might be a good time to buy into the stock if the company’s fortunes turn around and ATER stock rebounds.
In fact, from a recent low of $3.12 on Aug. 20, the stock has drifted higher to $9.96 as of Sept 29. In fact, recently as of Sept. 13, ATER stock was at $17.98. So, the stock has had quite a volatile ride.
Nevertheless, it seems that at $9.96, Aterian has a market value of $477 million, according to Yahoo! Finance. This seems to be too cheap for a retailer that is forecast to produce $244 million in sales this year. Expect to see ATER rise as a result.
Where Things Stand With Aterian
The company has had substantial increases and delays in its shipping containers, forcing it to use FedEx (NYSE:FDX) and higher-cost air suppliers. Nevertheless, on Aug. 9, the company reported higher sales and gross profits for its second quarter ending June 30.
Sales rose 14% from $59.8 million to $68.2 million in Q2. In addition, the company’s gross profits rose from $27.6 million a year ago to $32.74 million in Q2, up 18.6%.
Moreover, the company’s operating income rose from a loss last year to $4.47 million. Therefore, despite the shipping issues, the company has still generated a profit. In other words, Aterian’s profits would have been much higher with lower container shipping costs.
Recently on Sept. 23, the company announced that it had significantly reduced its debt as well. Aterian signed a deal with its main debtor to pay down $66.3 million and accrued and unpaid interest by issuing shares to the debtor. This puts the company on a more solid footing going forward.
What ATER Stock Is Worth
Analysts now forecast that the company will make $244 million in sales this year and $294.6 million next year. Next year’s sales forecast could rise if the shipping costs can fall as containers become available.
Therefore, at Sept 28’s market value of $477 million, Aterian trades for 1.95 times 2021 forecast sales and 1.62 times 2022 forecast sales. This seems to be too cheap especially since the company is profitable on an operating basis and should be more so by 2022.
For example, at 2 times 2022 forecast sales, Aterian would have a market capitalization of $589.2 million. That represents a potential gain of 23.5% over its present market cap.
This implies that ATER stock should trade at $12.3o per share. At 2.5 times sales the stock should trade at $15.38 per share or 54.4% over Sept 28’s price.
What Analysts Think About Aterian Stock
Analysts tend to agree with me. For example, four analysts surveyed by TipRanks project that ATER stock is worth $12.50, or 25.5% over Sept 28’s price. This is close to my original estimate that the stock is worth $12.30 per share. A similar price target of $13.00 is what Seeking Alpha reports from five analysts.
In addition, five analysts surveyed by Refinitiv as published by Yahoo! Finance have an average price target of $18.20. That is even higher than my upper-end price target at 2.5 times sales of $15.38 per share.
What to Do With ATER Stock
Given that the stock is still fairly cheap, seemingly near a low (i.e., well off of its highs), now might be a good time to begin taking a position in ATER stock.
Keep in mind that the stock is highly volatile and the ride could be quite bumpy. But this company might be an interesting play for value investors. My estimate is that ATER stock is worth at least $12.30 and as high as $15.38. If this works out, investors could make between 23.5% and 54.4% back on their investment.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
