About Grove Collaborative
Next up, we present to you a niche, trendy, consumer packaged goods (CPG) e-commerce platform that, in keeping with both current and emerging trends, is heavily focused on integrating sustainability within the products it ships and playing a role in helping make the world a cleaner overall environment.
Kudos to you, Grove Collaborative, first and foremost.
Headquartered in San Francisco, California, Grove can generally be viewed as a sort of middleman for sustainability rooted and driven brands, which can also be seen through their own products, from detergents and hand soaps to paper products and multi-purpose cleaners, among so many other product lines and skus.
I suppose the primary point of distinction between Grove Collaborative and other (online) distribution and/or delivery firms is the fact that they aren’t all of the sudden integrating their environmental concerns and sustainability in their primary line(s) of business and associated product lines, but rather, this is all Grove apparently focused on when it was first starting out; sustainable products, all the way around.
While this is a great mission in and of itself, we also have our fair share of opinions (regardless of your stances on sustainability or climate matters) that this company is doing an excellent job in gaining the current and emerging consumers, primarily, millennials and Gen X and Gen Zers, as many within these categories claim to be gravely concerned with environmental matters and thus well aligned with Grove and its partner’s collective mission, and with this, we do have our fair share of viable suspicions that millennials are even actually willing to pay a little more (if necessary) in order to buy a product that is a markedly more sustainable and fully aligns with their personal views on sustainability, which, of course, bodes quite well for a company such as this one.
Of course, this is merely a hunch at the moment and we will defer to the company’s numbers to back this hunch up.
Women lie, men lie, and, well, you know the rest.
Additionally, we are inclined to add that we personally view Grove’s partner’s packaging designs and marketing to be absolutely spot-on as they relate to their target consumers quite well, as when we first took a gander at the company’s products on its website throughout the various cleaning materials sections, we found it sometimes difficult to not notice the sleek, eco-friendly designs branded on some of the company’s product lines and various skus.
All things considered, yes, this company instantly operates in a massively competitive market, however, we think it goes without saying that it has its own edges and inherent competitive advantages developed through its in-house and external brands it sells through its platform.
Speaking of brands, Grove Collaborative is a platform that is home to both established and emerging household brands and their brand’s brands (i.e., subsidiaries) such SC Johnson and Unilever, not to mention the fact that Grove itself has its own product lines, outside of its primary e-commerce, distribution (delivery/shipping) business(es).
While it may seem like a lot all at once, ultimately, Grove Collaborative is a specialty e-commerce platform that generates revenue through the sale of its own CPG products as well as through subscription packages it offers and the company also more than likely gets a cut of the sales it generates on behalf of the aforementioned CPG companies it works with, and, in essence, advertises on behalf of.
Given all of this information, it’s only fitting that we put our ears a little closer to the ground and learn more about this company’s core financials and other related figures so as to determine whether or not this company’s stock (NYSE: GROV) is worth seriously considering as a potential investment.
After all, we are investors, not traders.
Grove’s stock financials
According to the company’s present market capitalization, Grove Collaborative is a $59.07 million firm with a share price of $1.59 along with no annually distributed dividend nor a displayed price-to-earnings (P/E) ratio, which cumulatively makes sense given that, even for the largest of the large e-commerce platforms, profit margins, at least on a net, trailing twelve month (TTM) basis, tend to be somewhat muted given all of the costs incurred when simply moving one box from factory floor to a customer’s door, therefore, we don’t presume Grove is even profitable (again, on a TTM net profit margin basis) yet, however, we will figure this out later and thus, being that we assume this is the case, it also makes sense that it doesn’t issue an annual dividend to its shareholders at the moment, as it simply cannot afford to drain any cash from its operations without putting itself it in a state of unnecessary financial risk.
Diving a bit deeper into Grove’s financials, the company’s executive team is tasked with stewarding and responsibly deploying a little over $174 million in terms of total assets as well as around $147.5 million in terms of total liabilities, which may initially seem like a little much, however, given the context of the e-commerce space (i.e., e-commerce pretty much always entails some form of inventory build-ups and other factors that lead to leasing warehouse space, transport and other links of the supply chain necessary to keeping its business afloat), it makes sense and we are simply happy to find that the company is still total asset-heavy, so long as it can continue on this path for the years and decades to come.
With respect to this company’s income statement, Grove Collaborative’s total annual revenues have been moving in the right direction (referencing since 2018), however, there has been a recent drop-off that leads us to worry a bit given how young and aligned this company is with younger yet rising generations and the fact that its core audience is perhaps not as loyal to Grove’s platform as we had initially anticipated certainly spooks us a bit.
We’ve seen a similar trend in one of the world’s most prominent plant-based firms as well.
At any rate, the company’s revenue in 2018 stood at nearly $105 million, rising the next year to $233.1 million, $364.2 million in 2020, $383.6 million in 2021, leading up to its latest displayed revenue figure of a noticeably softer $321.5 million, as reported in 2022.
Given how relevant this company is to so many consumers not only across the United States but the globe as well, it frankly puzzles me that this company is losing any sort of steam in terms of revenue generation and in this instance, puzzlement leads me to worry quite a bit, however, as perhaps the company’s target audience(s) aren’t as dedicated to purchasing their CPG products through Grove’s platform, as, perhaps a platform such as Amazon are eating its lunch with its immense pricing power and therefore the aforementioned demographics are inclined to purchase through Amazon instead.
We view Amazon as a perpetual threat for Grove, by the way, which is yet another challenge for this company, among others, moving forward.
As it relates to the company’s cash flow statement, Grove has been, expectedly, from our vantage point, losing money year-over-year (YOY), also referencing since 2018, as it takes a lot to keep such an operation alive given the competition and the multitude of costs associated with pleasing customers and successfully and efficiently delivering from one place to another.
This being said, in comparison to its revenues and balance sheet, a continual run-to-crawl of its revenues could be detrimental to this company given how much cash it is burning through, for instance, referencing its total cash from operations, losing between approximately -$83 million (2020) and -$127 million (2021) since 2019, which, again, if its revenues continue softening, could really put a dent in the company’s balance sheet if it continues taking on water through continued, uncontained losses.
This is yet another threat to the company’s business at the moment, from our vantage point, not to mention the simple fact of the matter that it is competing with people simply going out to their local grocery store and picking up some of the aforementioned companies’ products themselves instead of paying additional fees and waiting a longer period of time to receive their goods from Grove’s website.
Grove’s stock fundamentals
To basically no one’s surprise, the company’s listed trailing twelve month (TTM) net profit margin (as displayed on TD Ameritrade’s platform) lags the industry’s respective average by a notable amount, with the company’s TTM net profit margin listed as -10% to the industry’s average of 8.26%, which, again, was expected to a large degree, however, as objective prospective shareholders, we need to see some more tangible assurance that this company can beef up its TTM net profit margin to, at a bare minimum, breaking even, because, again, if this company continues bleeding cash, the already small margin of error will close and the company could find itself filing for bankruptcy in little to no time, at least, given what we have seen so far.
Lastly, with respect to the company’s TTM returns on assets and investments, Grove’s are, you guessed it, much worse off than those of the industry’s averages, with, for example, the company’s TTM return on investment (ROI) recently saddled at -23.09% to the industry’s inversely positive figure of 23.86%.
This discrepancy is large and if things don’t change soon and this company doesn’t start garnering some form of improved returns from the investments it has made in the past and is in the process of making, it is just yet one more reason to be bearish on Grove and its future.
Should you buy Grove Collaborative stock?
We are always happy to find companies with missions rooted directly in their DNA.
However, from a purely objective shareholder perspective, something just isn’t right here or perhaps the landscape in which Grove operates is simply all too brutally competitive and it isn’t obtaining the margins it needs to in order to invoke any confidence on our part.
Its negative cash flow seemingly puts its balance sheet in a rather compromising state, its revenues recently softened and while this could simply be viewed as a hiccup, we hardly see any feasible reasons for a mission driven company such as this one to experience any form of revenue softening, especially in this day and age and its emerging core demographic(s).
Therefore, we think it is best if we offer this company’s stock (NYSE: GROV) a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.