On Thursday, Citi reaffirmed its Buy rating on Soho House & Co Inc. (NYSE: SHCO) with a steady price target of $11.00. The endorsement comes despite recent share price declines triggered by a critical report from a short-seller. Citi's analysis countered the negative assessment, pointing out that the company has been implementing strategic changes since the fall of 2022.
The report from the short-seller suggested that Soho House & Co's business model was flawed. However, Citi's discussion with the company's management highlighted that the points raised by the short-seller were not new and could have been argued back when the company went public in July 2021. According to Citi, the short-seller's report failed to acknowledge the significant strategic adjustments that have been in motion over the past months.
"The report does not mention that strategic changes have been underway since Fall 2022 including changing leadership at the CEO and CFO level, narrowing focus on membership growth and experience, heightening focus on improving house level profitability, and moderating unit growth to a more manageable level for profitability," said Citi.
Citi's stance is that the year 2023 served as a period of stabilization for Soho House & Co, setting a foundation for the business. Looking forward, the firm anticipates that the year 2024 will be marked by more consistent and steady growth for the company. The strategic changes that have been implemented are expected to start bearing fruit, contributing to the company's growth trajectory.
The investment firm views the recent dip in SHCO's share price as a potential investment opportunity. Citi's confidence in the company's direction and the steps taken to refine its business operations underpin their Buy recommendation. Despite the short-seller's skepticism, Citi remains optimistic about Soho House & Co's prospects for the coming year.
InvestingPro Insights
In light of Citi's reaffirmed Buy rating on Soho House & Co Inc. (NYSE: SHCO), a closer look at the company's financial health and market performance through InvestingPro provides a nuanced perspective. Despite the challenges highlighted by a short-seller, SHCO has demonstrated some robust financial metrics. A standout feature is the company's impressive gross profit margin, which, according to the latest data, stands at a healthy 61.64% for the last twelve months as of Q1 2023. This suggests that Soho House & Co maintains a strong ability to control costs and generate profit from its sales.
However, the company's market capitalization has adjusted to 975.09M USD, reflecting the recent volatility in share price. This is further evidenced by the stock's performance over the last week, with a price total return of -20.0%, and over the last month, with a return of -25.82%. These figures underscore the high price volatility that SHCO generally trades with, an InvestingPro Tip that prospective investors should consider.
Moreover, the company has been trading at a high EBITDA valuation multiple, despite a staggering EBITDA growth of 831.53% in the last twelve months as of Q1 2023. This growth may be indicative of potential for future profitability, even though analysts do not anticipate the company will be profitable this year. For those seeking additional insights, there are 10 more InvestingPro Tips available for SHCO, which can be explored further at InvestingPro. To enrich your investment analysis, use coupon code SFY24 for an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 for an additional 10% off a 1-year subscription.
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