An Insider that Doesn’t Tilly’s-Dallys Around

Tilly's

Whew, it’s getting scary out there. Markets are falling again after Wall Street got walloped with a 1-2 punch combination of bad news. Inflation ran hotter than expected and FedEx told shareholders, um, things aren’t looking so good out there. The trends are so negative, we really don’t know what to expect. We paraphrased a little, but the sentiment is accurate.

With a backdrop of dropping prices, last week’s roster was mostly filled with habitual and first-time buyers. We always pass on executives that only know buy, buy, buy no matter if the trend is up, down, or sideways. First-time can be rewarding, but we also have to pass without any previous history of “being on the right side of the trade”.

We went into this week’s search hoping to find a low-priced stock that’s been knocked down and an insider(s) that has “been on the right side of the trade”. Fortunately, we found one, Tilly’s, Inc. (TLYS). The company operates as a specialty retailer of casual apparel, footwear, accessories, and hardgoods for young men and women, and boys and girls in the United States. Its apparel merchandise includes tops, outerwear, bottoms, and dresses; and accessories merchandise comprises backpacks, hydration bottles, hats, sunglasses, small electronics and accessories, handbags, watches, jewelry, and others, as well as hardgoods consists of skateboards, longboards, bikes, roller-skates, and equipment for snowboarding and surfing.

Co-founder and Executive Chairman, Hezy Shaked (that’s a great name for a surfer company owner) has done a pretty good job of selling higher, buying lower, and selling higher since 2017. Shaked sold 28 times from June 2017 through December 2018, at prices ranging for $10.01 to $21.95. He collected $68,455,258 during that 18-month window.

The Co-Founder switched from team sell to team buy in March 2020. He purchased 82,729 TLYS shares from $3.75 to $4, investing a total of $349,513. Fast forward to June 2021 and Shaked returned to team sell, unloading stock twice, once at $16.26 and the other at $16.50, pocketing a little more than 700 grand. Now, the Executive Chairman swings back into the buy column with 43,000 shares at $6.96 for $299,074. (1)

As we type, Tilly’s trades at $7.43 with a one-year price target of $9.67. (2)

Fundamentally speaking, the specialty retailer is not expensive. Wall Street believes the company will earn $0.50 per share next year (fiscal 2024) compared to $0.36 this year, roughly 39% growth. Meanwhile, sales are predicted to inch forward 5.1% to $697.01 million next year from $663.3 million in fiscal 2023 (this year).

The typical company in TLYS’ industry is valued at 24.3 times earnings (P/E) compared to 6.1 for the consumer cyclical company. During the last half-decade, Tilly’s average P/E was 25.23.

Using next year’s profit forecasts with the industry and company average valuations, we calculate the following potential price targets:

  • Industry Average P/E: $12.15
  • TLYS five-year average P/E: $12.62

Both are considerably higher than Wall Street’s one-year target.

OVERALL: Tilly’s, Inc. (TLYS) could offer prospective investors and Hezy Shaked attractive upside if the retailer meets Wall Street’s 2024 fiscal expectations and trades at the industry or company’s average P/Es. With a beta of 1.92 (4), shares have nearly twice the volatility as the S&P 500 and are only appropriate for high-risk investors with a time horizon of at least 18 months.

 

1 – https://www.secform4.com/insider-trading/1548777.htm

2 – https://finance.yahoo.com/quote/TLYS?p=TLYS

3 – https://finance.yahoo.com/quote/TLYS/analysis?p=TLYS

4 – https://finance.yahoo.com/quote/TLYS/key-statistics?p=TLYS