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Ishan Majumdar
Ishan Majumdar
Articles (131)  | Author's Website |

Investors Can Benefit From the Holiday Season Through These Stocks

These party supply manufacturers are witnessing strong growth in their order books

With the festive season around the corner, families as well as companies are looking for ways and means to carry out their celebrations without significant public exposure in order to ensure individual safety amidst the Covid-19 pandemic.

"Virtual parties" are becoming a new trend where people can attend any celebratory event like a birthday, an anniversary or an office Christmas party from the comfort of their homes. However, even for such a kind of remote celebration, the organizers as well as attendees require different kinds of party supplies such as costumes, balloons and other equipment in order to enjoy the festive spirit.

This trend means we still are seeing rapidly rising order books for party supply manufacturers and steady growth in their respective stock prices as everyone in the U.S. gears up for the holiday season. There are a number of interesting players within this space that investors can look at in order to capitalize on the increasing demand for party supplies, whether seasonally or in the long term. Here are some of my favorites.

Party City Holdco Inc.

Party City (NYSE:PRTY) has been one of the biggest success stories in the past six months within the manufacturing space as the company's stock has appreciated as much as 563%, backed by a string of solid results. The company is one of the oldest manufacturers of party supplies such as balloons, costumes, paper and plastic tableware, accessories, novelties, gifts, stationery and so on. It has over 850 brick-and-mortar outlets spread across the North American market under two brand names – Party City and Halloween City. It also operates on an e-commerce model through PartyCity.com and has an excellent distribution network across wholesalers, mass merchants, retail chains and dollar stores.

In its most recent result, Party City saw a 36% rise in its digitally enabled sales with a strong performance resulting from Halloween, and its gross margin increased by as much as 250 basis points owing to the large volume of online sales. The strong result was one of the biggest reasons for the jump in the stock price.

I think there is a decent possibility that upcoming holidays like Christmas, Hanukkah and New Year could benefit Party City significantly, resulting in yet another solid quarter with the stock price rising further.

It is worth highlighting that despite the recent jump, the stock continues to be valued at a price-sales ratio of 0.2, which is among the lowest in the cyclical retail industry. The company appears to be a compelling pick at current levels.

Yunhong CTI Limited

Illinois-based balloon manufacturer Yunhong CTI (NASDAQ:CTIB) was recently in the news for expansion of its production capacity owing to a rapidly rising order book. Unlike Party City, Yunhong CTI carries out most of its sales through wholesalers and distributors. The company had increased its production capacity by 14% through the installation of new machinery in its Lake Barrington facility to meet the rising demand for foil and latex balloons. It is also a distributor of products under the Candy Blossom brand and recently witnessed a 40% rise in the Candy Blossom orders, which are already catering to Valentine's Day 2021 as per the company's most recent press release.

The management traditionally considers Valentine's Day as its strongest seasonal holiday owing to the strong demand for balloons. In fact, this 40% rise in orders has made them optimistic about increased sales during future holidays such as Mother's Day and Father's Day, as well as the graduation events for students in 2021. Based on the capacity expansion news as well as this new update with respect to Valentine's Day, it appears that the company should deliver a reasonably good result for Q4 2020.

Yunhong CTI is working towards becoming a turnaround story. The company, earlier known as CTI Industries, received an investment from the China Yunhong Group, and the recent rise in the stock price is the first positive public sign in favor of the turnaround. In my opinion, the positive macro in favor of balloons resulting from the rising trend of virtual parties should benefit its order book as well as its stock price in the near future.

Final thoughts

Party City and Yunhong CTI are companies with a direct focus on the festive market, which is why I believe that there should be a direct positive impact on their stock prices in the upcoming months.

Retailers like Walmart (NYSE:WMT), Kroger (NYSE:KR) and Target (NYSE:TGT) are also expected to benefit from these factors, but these are significantly larger and more diversified companies, so the overall impact on their financials will be rather weak.

Disclosure: No positions.

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About the author:

Ishan Majumdar
I am a qualified Chartered Accountant with a Masters in Management (Grande Ecole) from HEC Paris. I run a proprietary boutique financial advisory firm called Baptista Research (www.baptistaresearch.com) specializing in M&A, corporate advisory, equity research and valuation of listed companies.

I have nearly a decade of experience spread across investment banks, financial advisory firms, investment funds and other corporates in many different geographies, such as France, Spain, India and others. I was a part of the LBO Financing team at BNP Paribas where I worked on deals with a combined enterprise value of over $1 billion. I have also worked in mergers and acquisitions with Credit Agricole CIB and corporate strategy with Groupe Danone SA. Over the years, I have developed a strong specialization in corporate valuations, strategy and financial analysis.

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