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Why Lovesac Company Stock Was Up Almost 30% in April

By Jon Quast - May 3, 2021 at 4:31PM

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The company reported blowout financial results that caused analysts to raise their price targets on the stock.

What happened

Shares of the Lovesac Company (LOVE 2.88%) were up 29.5% in April, according to data provided by S&P Global Market Intelligence. Oddly enough, the stock fell immediately following the release of its financial results for the fourth quarter of its fiscal 2021 even though results exceeded expectations. But it appears to be simply a case of a delayed, positive reaction from the market, since Lovesac stock steadily climbed thereafter.

So what

Lovesac's fiscal 2021 ran from the beginning of February 2020 to the end of January 2021. The company operates showrooms which were closed for part of the year due to the COVID-19 pandemic. But net sales were nevertheless up 37% from fiscal 2020 as e-commerce sales took off. Furthermore, Lovesac reported net income of $14.7 million (compared to a net loss of $15.2 million in the previous year) as its gross-profit margin expanded from 50% to 54.5%.

A businessman draws an exponential growth curve on a line graph.

Image source: Getty Images.

It was exactly the kind of report that you'd expect to make the stock rise, which is why it was surprising to see it down the day after. However, multiple Wall Street analysts were quick to raise their price targets for Lovesac stock following the report, according to The Fly. This may have helped the investing community get on board even though it was a day late.

Now what

Lack of specific guidance might be why the market was initially cool on Lovesac's results. However, the company did give an encouraging general outlook. It believes sales could grow north of 20% in the coming year, and it expects its gross-profit margin to at least be as good as fiscal 2021. Its net profit may fall in the coming year. But this is because management is planning capital expenditures of $13 million to $16 million to open new showrooms and build infrastructure in support of its long-term growth

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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The Lovesac Company Stock Quote
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