No Ordinary Joe - Followup

On March 20 we wrote a blog post about $JOEZ and the recent runup in the stock price. Yesterday the company reported another blowout quarter, with top line numbers up 23% q/q.   We continue to be bullish on the company's long-term prospects, with a 2-3 year price target around $3.  

The sales increase is encouraging because it shows the product is resonating with customers.  The direct retail business is growing dramatically, and wholesale business has stabilized at the end of F2011, with an increase in this Q1 number relative to the prior year Q.  Margins were slightly better (both gross and net).

If the company can achieve 10% sales growth y/y on a consistent basis and keep costs reasonable, the stock would be worth about $3.  The current price of just below $1.50 is fair assuming 5% growth for the near-term.  If 20+% growth were sustainable (unlikely), the stock could be worth $6 or more.

From a risk perspective, the company has little long-term debt.  The recent expansion into the direct retail business means they have taken on operating lease obligations which would be costly to terminate if they are unsuccessful in retail.  Also, if sales growth turns negative the stock could go back to below $1.

Based on this, JOEZ represents a reasonable risk/reward.  I am long the stock (since before the earnings announcement) and I would consider buying more on a dip.

Written by:  Jennifer Galperin. Follow me on Twitter and StockTwits.