Stock is Significantly Undervalued
Company needs to Initiate Investor Communication to Increase Value. Transparency, Uplisting or Outright Sale Would Double Share Price Immediately
Montana Advisors LTD and its affiliates collectively own 39,500 shares of Calloway’s Nursery, Inc ("CLWY or the Company"). Montana has made the following statements today regarding Calloway’s Nursery (OTCMKTS: CLWY) and is writing because we believe that CLWY’s stock is dramatically undervalued by the markets due to a variety of factors. While the stock has done well on a total return basis including dividends, the current market price is materially below where it should be. With that being said, we applaud the Company and management on a job well done so far.
Dear Members of the Board of Directors,
On August 12th Calloway’s reported exceptional 2nd quarter results, including record sales, free cash flow and earnings. The environment for home and gardening is robust as many people are turning to outdoor activities. In addition, studies have shown millennials are taking an increased interest in home and gardening. After the report, CLWY stock rose roughly 25%, and has since stayed at those levels, while companies in the space have had their multiples expand meaningfully. By our estimates, CLWY trades for roughly 8.5x next year's earnings.
We believe the reason CLWY’s multiple has not expanded is due to the fact it has virtually no liquidity, no investor communication, trades OTC with limited disclosure, and a majority of the shares are held by one stockholder.
If the Company were to immediately increase its visibility by developing investor communication, the trading multiple would increase significantly, to somewhere in the region of 12-15x, still a discount to peers, producing a stock price of up to $15 a share by next year, roughly double its current value. We also think enhanced communication would increase liquidity and allow interested investors to acquire shares. Alternatively, the Company could uplist to a major exchange, or simply seek a sale of the business to a private equity firm. We have been in contact with firms that are interested in acquiring home and garden businesses due to the durable and predictable cash flow streams they produce. CLWY also owns substantial high quality real estate that could be sold and repurposed. We believe a sale process of the business would attract significant interest from buyers at a starting price of at least $15 a share.
Montana Advisors would welcome the opportunity to have a virtual conference with the members of the Board to discuss our proposals and any thoughts you may have on enhancing stockholder value.
About Montana Advisors LTD
Montana Advisors is a long-term value investor that seeks to work with management to increase stockholder value for the benefit of all shareholders.
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President, Montana Advisors