Revisiting $POL, and why I still believe it will reach $2
Over the past year, investing in $POL (formerly $GOED Goedeker’s 1847) has been quite a bit of a rollercoaster for me. With the company rebranding to Polished.com to the turbulent events (or rather, the lack of events because of a prolonged company audit), it’s been an unpredictable journey.
Despite the ups and downs, I’ve remained invested in the company because I still believe in its long-term potential. I remain confident in the company’s future, and I’m excited to see what the next year (and beyond) has in store.
Let me take you through what happened between now and six months ago when I posted my second post on $GOED/$POL.
Current Price $0.78 (as of 16th Feb 2023)
On the 15th of August, the company released a statement, containing the following:
The Company also announced that it has filed a Form 12b-25 with the U.S. Securities and Exchange Commission (“SEC”) in connection with its inability to timely file the Form 10-Q for its second quarter of fiscal year 2022 ended June 30, 2022. As noted in the Form 12b-25, the Audit Committee of the Company’s Board of Directors, with the assistance of independent legal counsel and consultants, has commenced an internal investigation regarding certain allegations made by certain former employees related to the Company’s business operations. The Company expects to complete the investigation in the coming months. As a result of the additional time required to complete the investigation, the process of finalizing financial statements for the second quarter of fiscal year 2022 could not be completed on a timely basis. The Company intends to release its second quarter financial results as soon as reasonably practicable.
damn…
Within 5 days of the statement’s release, $POL’s value dropped sharply from around $1.56 to $0.79.
Since then, it has dropped to a low of $0.42 and hovered between $0.5 to $0.7.
On October 14th, the company released the following info:
Today announced the appointments of John “Rick” Bunka as interim Chief Executive Officer (“CEO”) and Robert “Bob” Barry as interim Chief Financial Officer (“CFO”), effective immediately.
In connection with the appointments, the Company also announced that it has accepted the resignations of Albert Fouerti, Maria Johnson and Elie Fouerti, effective immediately. Albert Fouerti remains a member of the Company’s Board of Directors (the “Board”).
Ellery Roberts, Executive Chairman, commented:
“The Board firmly believes that Polished can deliver significant long-term value for customers, strategic partners and stockholders. Over the past 18 months, the Company has consistently grown in a profitable manner and established a strong position in the expansive market for home appliances. As we move forward, Rick and Bob can help us sustain momentum while strengthening our foundation and operations. Rick is an accomplished executive with significant experience in the retail and e-commerce sectors. Bob is a high-integrity finance leader with institutional knowledge of our business and the home appliances market. We believe they are the right leaders for helping Polished navigate a transitional period and, ultimately, mature as an organization.”
Mr. Bunka, interim Chief Executive Officer, added:
“I am very excited to assume the role of interim Chief Executive Officer and help build on the foundation that exists at Polished. The Company has a strong growth trajectory and many of the ingredients for sustained success, including an extensive product catalog, proven ecommerce capabilities and unique value proposition in a $22 billion total addressable market. There are many talented executives and employees across the organization. I look forward to helping the business enhance its operations, grow its customer base and produce enhanced value for stockholders.”
At first, many $POL investors were afraid that the company and its proforma results were fraudulent, which shook the foundation of our bull thesis. This fear was worsened by the lack of communication from management and periods of silence, until November 2nd:
Focus of Previously Disclosed Internal Investigation: The investigation being carried out by the Audit Committee of the Board of Directors is focused on employment and inventory management practices. The investigation, which is supported by independent legal counsel and consultants, is focused on the time period of 2021 through the present. The Audit Committee intends to complete its accelerated, yet extensive, investigation by the end of this calendar year. If the investigation’s scope or timeline materially changes, Polished will provide a subsequent update.
Financial Position: As of 9/30, Polished had a cash position of approximately $26.5 million. As of the present date, Polished has not utilized any of the $40 million revolving credit facility that was established under its credit agreement disclosed on May 11, 2022.
This press release eased up our concern.
It should also be noted that Rick Bunka, the interim Chief Executive Officer will take a $2.2 million bonus if he sells the company.
Then on December 2nd, they released the following statement:
The Audit Committee’s independent legal counsel and advisors have concluded their investigative process. The Board of Directors is now assessing the results. The Company will disclose relevant and material findings upon concluding its evaluation, which it intends to do on an expedited basis.
Then on December 22nd, the results of the investigation were shared:
As of the present date, Polished has not utilized any of the $40 million revolving crThe Company’s Board of Directors (the “Board”) has completed its assessment of the results of the Audit Committee’s previously disclosed internal investigation. The investigation, which was supported by independent legal counsel and advisors, produced the following key findings pertaining to the Company’s business operations under former management during the 2021–2022 period:
The Company was charged by its former Chief Executive Officer approximately $800,000 for expenses unrelated to the Company and its operations.
The Company appears to not have had in place all the necessary documentation for all of its employees and, in turn, may have failed to comply with certain legal requirements. As elaborated on below, the Company has subsequently put in place enhanced controls to remedy any labor issues and believes it is now in full compliance with legal requirements.
The Company’s controls, software and procedures for managing and tracking inventory, including damaged inventory, were insufficient. As elaborated on below, the Company has subsequently put in place enhanced controls to remedy such issues.
Corporate Updates
At the Board’s direction, the Company’s new management has undertaken its own review of prior management’s practices and representations. Based on a preliminary review and presently available information, the Company does not expect any material restatement of its fiscal year 2021 financial results. The Company does, however, expect to restate the first quarter of fiscal year 2022, reflecting a reduction in revenue of $6 million to $8 million and a related reduction in cost of goods sold of $5 million to $7 million. The likely result for the quarter is a decline in gross margin and a reduction in income from operations (before income taxes) of $1 million to $2 million.
Earlier this week, Polished received a resignation letter from its auditor. As a result, the Company has been engaging with qualified replacements and is in advanced discussions with a new potential auditor. The Company expects that its new auditor will re-audit fiscal year 2021 while also reviewing financials for the second quarter of fiscal year 2021, the third quarter of fiscal year 2021 and the first quarter of fiscal year 2022. The Company plans to work with its new auditor to prepare and file all delayed and restated financial statements as soon as reasonably practicable.
In terms of outlook, the Company no longer expects to hit the top-line and bottom-line guidance set forth by former management in prior statements.1 In addition to challenges associated with this year’s management change and internal investigation, the Company has been impacted by the same economic headwinds and margin pressures facing other high-ticket consumer discretionary companies. With this context in mind, the Board and new management retain high conviction in Polished’s go-forward ability to grow profitability and seize on unique positioning in the robust U.S. home appliances market.
On 28th December:
Today announced that the Audit Committee of the Company’s Board of Directors (the “Board”) has approved the engagement of Sadler, Gibb & Associates, LLC (“Sadler”) as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2022 and 2021.
On Jan 19th, the company held an annual meeting to vote on three proposals. Proposal 2 was revoked, twice:
As previously reported in its Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 19, 2023, Polished.com Inc. (the “Company”) held its annual meeting of stockholders via live audio webcast on January 19, 2023 (the “Annual Meeting”), which was adjourned to February 2, 2023, solely with respect to voting on Proposal 2, to approve an amendment of the Company’s amended and restated certificate of incorporation to increase the number of shares of common stock that it is authorized to issue from 200,000,000 shares to 250,000,000 shares (the “Charter Amendment”), which is described in more detail in the Company’s definitive proxy statement filed with the SEC on December 19, 2022.
At the beginning of the Annual Meeting reconvened via live audio webcast on February 2, 2023 (the “Reconvened Annual Meeting”), there were 71,102,546 shares of common stock present or represented by proxy, which represented 67.57% of the shares of common stock entitled to vote at the Reconvened Annual Meeting, and which constituted a quorum for the transaction of business.
So further dilution is off the table, also note that the current issuable 200,000,000 shares account for the warrants (which takes up 92.5m of the pie, and common share outstanding at 106m).
Now, we know that the investigation affected our bull thesis, but even when considering that:
Company does, however, expect to restate the first quarter of fiscal year 2022, reflecting a reduction in revenue of $6 million to $8 million and a related reduction in cost of goods sold of $5 million to $7 million. The likely result for the quarter is a decline in gross margin and a reduction in income from operations (before income taxes) of $1 million to $2 million.
And considering that 2022 Q1 revenue was stated as 152.8m, a reduction by 6 to 8 million = 144.8m Q1 revenue.
With this in mind, we can adopt a more cautious outlook and suppose that the mean quarterly earnings amount to 130, resulting in a total of 520 million for FY2022.
Adopting a P/S ratio of 0.3 (extremely conservative), we can value the company at 156m.
And considering 106m shares outstanding, we can assume 156/106=$1.47 as a target price. Furthermore, with current prices at $0.79, this is an extremely valuable opportunity.
On Jan 26th, Morgan Dempsey Capital Management sent the $POL management the below statement:
The Reporting Persons believe that the Common Stock and Warrants are
undervalued. The Reporting Persons base this conclusion principally on
representations made in the Corporation’s Form 10-K for fiscal year 2021
as filed on March 31, 2022, and the Form 10-Q for the first fiscal quarter
of 2022 as filed on May 16, 2022, with both filings interpreted in light of
the additional information provided in the Corporation’s Form 8-K, Item 8.01,
as filed on December 27, 2022, and which the Reporting Persons wish to
incorporate herein by reference. In the ongoing absence of Form 10-Q filings
for the second and third fiscal quarters of 2022, the Reporting Persons
have supplemented the representations of the Corporation’s previous 10-K,
10-Q, and 8-K filings using publicly-available information including retail
appliance industry conditions, freight and fuel costs, and third-party web
traffic data.The Reporting Persons have engaged in communications with the Corporation’s
chief executive officer, chief financial officer, and several members of
the board of directors. The Reporting Persons presently have no desire to
change the composition of the Corporation’s executive management or its
board of directors. The Reporting Persons further disclose that its shares
were voted in favor of all nine director nominees in the annual meeting of
shareholders held on January 19, 2023.Within the past 10 business days, the Reporting Persons have reached a
research conclusion and believe that, as a result of their ongoing analysis,
the ideal way to optimize value for all shareholders in the current
environment is a prompt sale of the Corporation to a strategic or financial
acquirer in a private-market context. Specifically, the Reporting Persons
have come to doubt that the public equity markets will value the
Corporation’s securities fairly in light of the Corporation’s disclosures
between August 16, 2022 and January 19, 2023, even if and when the
Corporation files the heretofore delayed Forms 10-Q and its Form 10-K for
2022. The Reporting Persons therefore urge the Corporation to engage a
well-regarded investment bank to solicit offers that will establish and
then realize the fairest value for shareholders given the uncertain
financial market and macroeconomic circumstances extant at this time.
To emphasize its investment conclusion, the Reporting Persons voted its
shares against the Corporation’s proposal to increase the number of
common shares authorized for issuance to 250 million from 200 million,
a proposal that remains pending at this time given the temporary
adjournment of the annual meeting of shareholders on January 19, 2023.The Reporting Persons intend to continue engaging in communications
with the Corporation’s management team as well as the Corporation’s
board of directors regarding means to enhance shareholder value.
Such possible plans or proposals may include one or more plans or
proposals that relate to or would result in any of the matters set
forth in subparagraphs (a) — (i) of Item 4 of Schedule 13D.The Reporting Persons plan to continuously evaluate, among other factors,
the financial condition, results of operations, business and prospects
of the Corporation, the securities markets in general and the market
for the Common Stock in particular, prevailing economic conditions
and expected trends, all with a view to determining whether to hold,
decrease or increase their investment in the Common Stock, through
open market, privately negotiated or any other transactions.
On Jan 27th, the management responded with the following:
Jefferies LLC is Acting as Financial Advisor Following Private Expressions of Interest in Acquiring the Company
Polished is Open to All Pathways to Maximizing Value for Shareholders, Including a Sale of the Company
BROOKLYN, N.Y. — (BUSINESS WIRE) — Today the Board of Directors (the “Board”) of Polished.com Inc. (NYSE: POL) (formerly known as 1847 Goedeker Inc.) (“Polished” or the “Company”), issued the following statement in response to the Schedule 13D filed with the Securities and Exchange Commission by Morgan Dempsey Capital Management, LLC (“Morgan Dempsey”) on January 26, 2023:
Polished’s Board and management team welcome the constructive input of our investors. We have consistently engaged with Morgan Dempsey and are confident that we both share a common goal: maximizing value for all the Company’s shareholders.
Following the receipt of multiple private expressions of interest in acquiring all or part of the Company, Polished engaged Jefferies as our financial advisor to help us evaluate credible potential transactions. The Board and management team remain open to all pathways for maximizing value, including a sale of the Company.
Concurrently, Polished is encouraged by the early signs of progress by our new management team and remains focused on driving sustainable, long-term sales and earnings growth.
There can be no assurance that any transaction or the sale of the Company will occur. At this time, Polished shareholders are not required to take any action.
McDermott Will & Emery is acting as legal advisor to the Company.
Following the management’s reply, the stock rallied from $0.54 to $0.83 in a day.
It is later revealed in the 13F fillings that Morgan Dempsey increased their holding by almost 2.3m shares and now owns 5.7% of the company.
Furthermore, it is also revealed that Praetorian Capital Management increased their holdings to 4.5% of the company.
The two funds could potentially become activists and assist with the company sale, and it’s also possible that other funds may follow suit once the financials are disclosed, and robust results are compiled.
My thoughts…
The Bank of America approved a loan for this company in May 2022, and its significance cannot be overstated. The positive review of the company’s financials by the bank was crucial. Bunka’s confirmation that the company has $24 million in cash and $40 million in untapped Lines of Credit indicates that the company is sufficiently capitalized, and there is no risk of bankruptcy.
In addition, the positive audit results were a strong signal for me to average down and increase my position. My concerns about significant downside risk have been eliminated since the audit was thorough, and the results had a minimal impact on the business. Additionally, the shareholders have defended themselves against dilution by voting down Prop 2, which is unfortunate for management but beneficial for shareholders.
In addition, it’s worth noting that the interim CEO would receive $2.2 million if a sale were to occur, and the recent development of hiring Jeffries to sell the company is another positive signal. However, it’s important to keep in mind that investing always involves risks, and proper research and analysis are necessary before making any investment decisions.
Takeaway
My conviction still remains high following these events and believe if the company were to be acquired, $2 is highly likely to be reached.
My reasons are as followed:
Currently, at 83 million market cap, and considering they are going to make 520 million in revenue for FY2022 (which is a hugely conservative view), they are currently trading at x0.15 P/S.
Since they have engaged a new auditor, the new financials are still under review. If the company continues to be profitable, I believe that a P/S ratio of x0.15 is significantly undervalued, especially given the potential for acquisition. The Appliances Connection brand and its distribution networks could be highly beneficial for other companies looking to enhance their vertical integration. This will only increase the acquisition premium.
If the company will not be acquired, I believe organic growth is still achievable (obviously more financials are needed for more assessments). I believe POL is at a strong position to not only increase top and bottom line by improving their fill rates, expand on new distribution centres and capitalise the appliances connection brand and service to gain market share in the growing E-commerce appliances business.
Potential Catalysts
- News of Acquisition
- 10Q/Ks being released
Disclaimer:
The information provided on this blog is for educational and informational purposes only and should not be considered financial or investment advice. The content is not tailored to any particular person’s financial situation, and the ideas expressed may not be suitable for everyone.
It’s important to conduct your due diligence and seek professional financial advice before making any investment decisions. Any investment involves risks, including the potential loss of principal, and past performance does not guarantee future results.
Disclosure:
The author of this blog has positions in the stocks mentioned and may purchase or sell these stocks at any time without notice. The author will not be held responsible for any losses or damages that may occur as a result of any investment decisions made based on the information provided on this blog.
