What happened
Shares of Lovesac (LOVE +1.56%) tumbled 20.6% in May, according to data provided by S&P Global Market Intelligence, on no specific company news, but rather likely on indications of a worsening economy.
Rampant inflation, rising gas prices, and a housing market that appears to be sputtering seems to have dented Lovesac's share price along with other former growth stocks that have been in a tailspin for some time. A lack of available funds and fewer new home sales would take the prospects of rebounding much further out.
Existing home sales were down over 2% in April (the most recent data available), while single-family home starts were down more than 7% for the month.
So what
Lovesac, though, bounced higher late in the month as some specialty retailers beat analyst expectations on sales and earnings. For example, Williams-Sonoma trounced analyst profit forecasts and edged out revenue predictions, which helped its stock make a U-turn and allowed Lovesac to follow course.
NASDAQ: LOVE
Key Data Points
The sectional furniture maker, however, just reported its own first-quarter earnings that stood Wall Street estimates on their head. Where analysts had expected a loss of $0.21 per share, Lovesac reported profits of $0.12 per share, and sales were more than $14 million above forecasts at $129 million, but its stock is tumbling 15% on the news.
The stock trades 25% above its May low point.
Now what
Many investors still see Lovesac as a major growth opportunity as millennials with deeper pockets gravitate toward buying its "sactionals."
Wall Street still sees massive upside. Although shares are trading around $38 today, only a week ago analysts at D.A. Davidson fixed a one-year price target of $124 per share to Lovesac's stock. That's a better than threefold gain expected within the next 12 months, and while that's a downgrade from where it was, it's still at the high end of what analysts are forecasting.
Wall Street has a $110 per share consensus price target on Lovesac shares with an obvious buy rating.
With 16 consecutive quarters of sales growth north of 25%, the Street might be onto something. As CEO Shawn Nelson said in its just-released earnings announcement, "Lovesac was innovating and rapidly growing prior to the COVID pandemic, throughout the pandemic, and continues to grow rapidly today." It might be able to defy the macroeconomic headwinds its industry faces.
