Stock Market

Investing in 1847 Goedeker Is for Risk-Takers Only

Most companies that get love from Reddit don’t deserve it. However, 1847 Goedeker (NYSEAMERICAN:GOED) stock may be an exception.

A staged room with a blue chair in focus.

Source: Shutterstock

The name refers to a New York private equity firm that took over a St. Louis retailer for $6.2 million in 2019. The play is to scale the business of selling big products like refrigerators and beds online.

The method is to raise capital and buy out those who know how. The company paid $205 million for a New York company called Appliances Connection, then immediately went after a Florida operator called Appliance Gallery.

The result has been big top line growth and a small third-quarter profit. Revenue for the September quarter was $142 million and net income came to $3.3 million — 3 cents per share.

Should You Pay Attention to GOED Stock?

Having secured financing and scale, and demonstrated some operating skills, Goedeker’s is now talking about delivering its own house brands in the first half of 2022. The company also plans to add new fulfillment centers to serve more of the country.

The equity to do this came in the form of stock sold at $2.25 per share. The deal caused the stock to spike briefly, to as high as $4.49 per share. But GOED stock has since given up all those gains and more. Goedeker was due to open Nov. 29 at $2.19 per share. That’s a market cap of $227 million, which shows little investor confidence in the plan.

That may be because the man who conceived that plan, Doug Moore, resigned at the start of September and took a $650,000 severance check, while agreeing to be a director. His successor is Albert Fouerti, who had been running Appliances Connection. He promised to buy $1 million in Goedeker stock after his appointment.

All this means you should forget any romantic idea you had of a hardscrabble, family-run St. Louis retailer taking on the big boys like Home Depot (NYSE:HD), Lowe’s (NYSE:LOW) and Amazon (NASDAQ:AMZN). This thing has Brooklyn written all over it.

Not that there’s anything wrong with that.

The Speculation

Given what seems like a straightforward business deal, with Appliances Connection taking over what New York private equity guys built, speculation around GOED stock is curious.

Credit activists like David Kanen. His Kanen Wealth Management made a run at the company in June, around the time of the Appliances Connection deal. His firm still has 5.64% of the stock and was talking it up in October, in violation of a clear settlement agreement.

Activists and Redditors pumped GOED stock up to as high as $14.50 per share in February. It traded for just $1.87 in June before the Appliances Connection deal closed at $2.25. What investors should look for is more stable ownership, and they may find it in Blackrock (NYSE:BLK). A recent 13F filing shows that BlackRock took a position at $3.50 per share on Nov. 9.

Shorts also jumped in on Nov. 12. They seem to have been successful in pushing the stock price down.

The Bottom Line on GOED Stock

If Fouerti can find success with Appliances Connection’s plans, 1847 Goedeker could be a hot stock in 2022.

This assumes Fouerti can maintain the third quarter’s revenue pace, with a small profit. If he can, you’re looking at $500 million in sales volume, for a stock with a market cap of less than half that. For a retailer that’s reasonable.

You’re swimming with some big New York private equity names here. You’re a minnow and they’re the sharks. If there is a quick profit to be had they’re going to get the bigger share of it.

But if you like swimming in that kind of slipstream be my guest. Just keep your ears open and be ready to get out when you decide the getting is good.

On the date of publication, Dana Blankenhorn held long positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.

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