DAVIDsTEA (DTEA): Solid Profitability, Negative EV in Q4 Debt-free DTEA will announce solid profitability in Q4 with strong operating cash flow and free cash flow, so its cash is expected to reach or even exceed C$15 million at the end of Q4. Here is why:
Q4 revenue usually almost double compared to Q3, so Q4 revenue will be about C$27 million.
Gross profit margin in Q4 will be at least 40% (a very conservative estimate because it was 51% in Q3) and SG&A expenses will be about C$7 million, same like Q3:
"Adjusting SG&A for non-recurring items, these expenses would have amounted to $7.1 million in Q3 2024, an improvement of $1.0 million or 12.6% over the prior year quarter."
As a result, net income in Q4 2024 will be about C$4 million, operating cash flow will be about C$10 million, and free cash flow will be about C$7 million, so cash will reach C$15 million at the end of Q4.
Debt will remain zero.
Market cap at C$0.50 per share is only C$13.5 million.
Therefore, DTEA's Enterprise Value at C$0.50 per share will be NEGATIVE in Q4 2024.
In other words, DTEA at C$0.50 is dirt-cheap.
Given also that annual revenue in 2024 will exceed C$65 million, its Enterprise Value should be at least 0.5 times its Revenue or at least C$33 million.
So DTEA should be at about C$2 per share at the end of Q4, which is still a very low valuation, because most other beverage stocks trade from 1 times to 5 times their revenue.