The Motley Fool

The BWX share price stormed 49% higher in August: Is it too late to invest?

The All Ordinaries may have tumbled lower last month, but that didn’t stop the BWX Ltd (ASX: BWX) share price from charging higher.

The personal care products company’s shares ended the month with a stunning 49% gain.

Why did the BWX share price rocket higher in August?

Investors have been scrambling to buy the company’s shares since the release of its full year results late last month.

Although the company behind the Sukin brand had a disastrous 12 months, the company’s second half performance and management’s confidence in its outlook appears to have given investor confidence a major lift and spooked the short sellers that were targeting the company in high numbers.

In FY 2019 BWX reported net revenue of $149.5 million, underlying EBITDA of $21.3 million, and net profit of $9.5 million. This was a 0.5% increase, and a 47.2% and 50% decline, respectively, on the prior corresponding period.

This was driven largely by the underperformance of its key Sukin brand. Sales of Sukin products fell 20% in FY 2019 due to non-repeating unprofitable promotions and the stabilisation of stock levels in the channel over the period.

Pleasingly, things improved in the second half, ultimately leading to BWX posting second half revenue growth of 19.5% over the prior corresponding period.

The good news is that management expects this momentum to carry over into FY 2020 and has provided full year guidance for 25% revenue growth and 25-35% EBITDA growth.

The company’s new managing director and CEO, Dave Fenlon, explained: “BWX remains well positioned with category leading brands underpinned by material growth trends favouring natural products. The Group will continue its investment in brand building, process improvement, capability and innovation to drive deeper consumer penetration and basket size supporting double digit revenue and EBITDA growth in FY 2020.”

Should you invest?

Whilst things appear to be improving greatly for the company now, I wouldn’t be in a rush to invest just yet.

Based on its EBITDA hitting the top end of its guidance range, I estimate that BWX’s adjusted earnings per share could come in at around 12.8 cents per share in FY 2020. If this proves accurate, its shares are now changing hands at 27x estimated forward earnings.

I don’t think this is particularly good value given its recent track record. In light of this, I would suggest investors consider other growth shares that offer a better risk/reward such as A2 Milk Company Ltd (ASX: A2M) or Webjet Limited (ASX: WEB)

5 stocks under $5

We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.

And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

*Extreme Opportunities returns as of June 5th 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles...