Flexsteel Hit A Bottom, Is A Reversal Coming Next?
Shares of Flexsteel Industries (NASDAQ: FLXS) are trying to hammer out a bottom that could very easily become a double-bottom. This bottom is supported not only by the outlook for business but by the insider and institutional activity as well. Starting with the insiders, the insider activity has been all that strong but is overwhelmingly bullish. A variety of insiders including several directors, the CEO, VP, and CFO have been scooping up shares for the last year or more. Their transactions are small and periodic, both during the upswing in prices and in the time since and point to a high level of confidence in the company’s performance moving forward. As it stands now, insiders purchased only 0.16% of the stock in the last 12 months but the total holdings are close to 7.5% and growing.
Institutional activity has been a little more robust with a net $16 million in shares purchased during the last year. The $16 million is a small number in terms of the broader market but worth 9.6% of this small-cap’s market cap with shares trading at a 15-month low. This brings the total institutional ownership up almost 59% and we will not be surprised to see this figure grow. Flexsteel is trading at a very low valuation, only about 9X its forward earnings expectation, and it has a relatively attractive outlook for dividend growth. There are no analysts currently rating the stock.
Headwinds Dampen Outlook, Fundamentals Remains Strong
Flexsteel has been rebounding from its COVID lows but the headwinds facing the company are mounting. While positive traction has been gained in the form of increased inventory of shipping containers and even inventory, driver shortages and blockages at container ports are causing unprecedented delays in pick-ups and deliveries of raw materials and finished goods. The company reported $141.67 million in revenue the 18.9% growth is less than it could have been. Worse, the company reports a massive upsurge in ancillary costs related to shipping containers and blockages cut deeply into the bottom line.
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“Although our growth outlook is promising, we are contending with major supply chain challenges which are adversely impacting near-term profit results … We’ve imported a record number of containers in the past seven months to support our robust growth and strategically build inventory. However, severe congestion at ports and railroads combined with a lack of truck drivers and warehouse workers to pick up, unload, and return containers has financially burdened these imports with significant, unanticipated ancillary charges.”
The ancillary costs are estimated to have run in excess of $15 million or more than 10% of quarterly revenue. This resulted in an operating loss for the quarter and the forecast for the coming quarter or two is the same. On the bottom line, the company reported a loss of $1.13 versus a profit of $1.13 last year with the adjusted loss of $1.05 little better. The only good news is that revenue growth is expected to continue and that, at some point in the future, supply chain disruptions and record costs for shipping will subside and profitability will return. As for guidance, no formal guidance was offered but an update on backlogs was given. Backlogs for retail furnishings are up more than 20% YOY and demand appears to be holding strong.
The Technical Outlook: Flexsteel Is Double-Bottoming
Shares of Flexsteel hit a low in December 2021 that is being tested again now, in the wake of the fiscal Q2 earnings release. The price action is confirming support at this level, however, and bears the hallmarks of a Double-Bottom. These hallmarks include diverging momentum, a bullish crossover in the stochastic, and bullish price activity at the $23 level. In our view, price action is about to move up and retest resistance at the short-term moving average and then near $30, if it can get above those levels we see it continuing higher into the end of the calendar year.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Flexsteel Industries (FLXS) | $38.63 | -0.6% | 1.55% | 13.32 | | N/A |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
