Materials

Report by BWS Financial

Q2 results are the latest in a series of disappointing earnings announcements, yet the stock continues to trade at a high PE multiple as investors expect the brand to remain protected in a soft economic environment. Hamed Khorsand would agree if it were not for inventory and accounts receivable at high levels. Furthermore, WDFC is adding to its debt balance to repurchase shares and issue a cash dividend, which he does not believe is sustainable when the business is facing unit volume challenges. Hamed expects WDFC’s stock to come under pressure as investors reassess the fundamentals of the business vs. purely relying on brand recognition. 12-month TP $88 (50% downside).

Materials

Report by BWS Financial

Earnings miss underscores Hamed Khorsand’s ongoing concerns - his short thesis is based upon slower demand for WDFC’s products and rising inventory levels. The group’s reliance on price increases will lead to further earnings misses as input costs remain elevated at a time when customers could experience sticker shock as further price hikes are rolled out this quarter. WDFC generated negative FCF in fiscal 2022 and there is no assurance FCF will turn positive in fiscal 2023. TP $88 (45% downside).