We came across a bullish thesis on The Duckhorn Portfolio, Inc. (NAPA) on Scalper’s Lounge’s Substack by scalpavelli. In this article, we will summarize the bulls’ thesis on NAPA. The Duckhorn Portfolio, Inc. (NAPA)’s share was trading at $11.02 as of Nov 5th. NAPA’s trailing and forward P/E were 24.49 and 16.45 respectively according to Yahoo Finance.
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The Duckhorn winery portfolio, trading under NAPA, has recently faced an extremely bearish perspective suggesting it could either plummet or be acquired at a rock-bottom valuation of $2.50-$3.00. However, this dire outlook seems exaggerated. After conducting a conservative analysis, there’s potential to establish a long position post-earnings, particularly if a dip occurs, though even the current valuation looks promising if the financials hold steady.
Duckhorn operates in a cyclical industry that, despite recent headwinds, has retained financial resilience and profitability, akin to other undervalued companies like Marcus. While wine has been affected by generational shifts in alcohol consumption, it arguably has a stronger comeback potential compared to cinema. Duckhorn’s financial strength stands out, with a balance sheet boasting an inventory of around $450 million, significantly higher than the typical $300 million. With gross margins near 50%, this excess inventory presents an opportunity for a working capital release that could yield substantial gains, similar to bullish catalysts seen in the oilfield services sector.
Duckhorn’s operational track record is solid, with GAAP earnings per share of $0.52 in both 2021 and 2022, and a slight increase to $0.60 in 2023. The company recently completed a $400 million acquisition, funded mostly through stock issued at $11.11, further reinforcing its growth trajectory. This acquisition, though causing some initial skepticism due to inventory build-up and current industry challenges, enhances Duckhorn’s distribution network and is expected to bring synergies that haven’t yet been fully reflected in the stock’s valuation.
Adding to the potential, Duckhorn has a short interest of 5.8%, which, although relatively modest, may contribute to a positive setup as bearish positions unwind. This market sentiment, coupled with a robust balance sheet and low valuation — trading at less than 10 times trailing GAAP earnings even before acquisition synergies are realized — offers a compelling investment case. The market’s current pessimism seems overdone, creating a rare opportunity for investors willing to counter prevailing bearish views. Duckhorn’s strategic positioning, financial resilience, and growth prospects suggest that a rebound could be on the horizon, making this an attractive setup.
The Duckhorn Portfolio, Inc. (NAPA) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held NAPA at the end of the second quarter which was 14 in the previous quarter. While we acknowledge the risk and potential of NAPA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NAPA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.