The MyDeal.Com Au Ltd (ASX: MYD) share price has been gradually recovering since May. A continuation in revenue growth has put the online retail marketplace in a good light. While the company is operating in a space filled with formidable foes, some investors are taking a liking to the smaller competitor.
Sydney-based private investment company EGP Capital is one such investor that is bullish on the MyDeal share price. The reasoning behind EGP Capital's positive outlook for the company was shared in the fund's October report.
Let's jump into the details.
What makes the MyDeal share price worth looking at?
The team behind EGP Capital's Concentrated Value fund are big backers of numerous ASX-listed retail-focused businesses. For example, Cettire Ltd (ASX: CTT), Redbubble Ltd (ASX: RBL), and MyDeal all make an appearance in the fund's top 10 holdings.
According to the fund's October report, rather than backing the larger online retailers, EGP is keener on the prospects ahead for MyDeal — with a market capitalisation of ~$225 million.
Chief investment officer (CIO) Tony Hansen detailed several reasons why the fast-growing retailer play is attractive. The first reason is the incentive structure in place for the MyDeal CEO and founder, Sean Senvirtne. Nearly half of the company's shares are owned by Senvirtne.
However, the primary reason for EGP Capital's interest in the MyDeal share price is the marketplace element. This involves connecting buyers with sellers through the company's online platform, taking a fee from the transaction in the process.
Hansen notes that the cash flow generated by this business segment alone allows the business to grow without the need for external capital.
How does it compare to another online retailer?
Because of its capital-light nature, the fund prefers to compare MyDeal to Temple & Webster Group Ltd (ASX: TPW). In comparing the two, Hansen and the team believe that the smaller online retailer could be worth ~$1.40 if it were valued similarly to Temple and Webster.
Hansen came to this conclusion by comparing the companies enterprise value over gross margin (EV/GM). For Temple and Webster, this equates to ~7 times. Meanwhile, MyDeal's EV/GM comes out to around 3 times.
Finally, EGP Capital suggests that if MyDeal can demonstrate revenue growth and profitability over several quarters, then it might attract a more premium valuation. For investors, this would translate to a higher MyDeal share price.
MyDeal shares are down 32% since the beginning of the year. Coming off of a booming time for online retailers during COVID-19, the company has failed to maintain the momentum.
