The Selloff In SiteOne Landscape Supply Is Overextended

May 4, 2022

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By MarketBeat. Originally published at ValueWalk.

SiteOne Landscape Supply Moves Lower On Weak Guidance

SiteOne Landscape Supply (NYSE:SITE) has been in a correction that is now overextending into an attractive buying opportunity. The stock is down more than 7% in the wake of its Q1 earnings report on what we view as cautious guidance. The company beat the top and bottom-line estimates with ease but feels the risks in 2022 are balanced and only maintained its guidance. While we feel there are risks to the economy, we also view home improvement trends as strong and think it will take a few quarters at least before the FOMC is able to put the kibosh on that. What this means to us is that SiteOne Landscape Supply should build on Q1 momentum and outperform for the rest of the year.

Q1 2022 hedge fund letters, conferences and more

SiteOne Landscape Supply Blossoms In Q1

SiteOne Landscape Supply Company reported the same late start to the spring season as Scotts Miracle-Gro (NYSE: SMG) but the results are much different. While Scotts Miracle-Gro has its investment in the cannabis space hanging over its head SiteOne doesn’t and it shows. The company reported $805.3 million in revenue for growth of 23.9% over last year and a Q1 record. The strength was driven by a 17% increase in average daily sales and a 700 basis point impact from acquisitions. Price and price realization also played a factor and helped the company exceed the Marketbeat.com consensus by 850 basis points as well so these are impressive results.

What’s more impressive is that margins widened as well. Not only did the company keep up with inflation but strategic purchases and supply chain initiatives helped increase gross margin by 240 basis points and decrease SG&A by 100. The adjusted EBITDA margin improved by more than 310 basis points but future gains are iffy at this point. As for adjusted EBITDA, it’s up 97% from last year and led to a very solid gain in EPS as well. On the bottom line, the $0.70 in GAAP earnings is up nearly 200% from last year and beat by $0.55.

The only bad news is the guidance. Taken at face value, it looks like this year’s strength has already happened but we don’t think that’s the case. Business trends are still strong and the FOMC will likely drive a wave of activity ahead of its rate hike curve that will take a few quarters to play out. We feel the company’s guidance is not only low but possibly very low.

“The underlying market trends remain positive across end markets and product segments, and our customer backlogs are strong headed into the spring season,” said CEO Doug Black. “… we now believe that prices will remain elevated for the rest of the year. This trend supports higher Organic Daily Sales growth for the full year. While there is positive momentum in our business, the spring season is off to a slower start this year with cold and wet weather continuing through April, and there continues to be global uncertainty which could impact end markets. Taken all together, we believe that the upside and downside risks are balanced, and we are maintaining our guidance for the full-year 2022.”

The Technical Outlook: SiteOne Landscape Supply Moves Lower

Price action in SiteOne Landscape Supply moved sharply lower following the Q1 release but we think the downtrend is overextending and ripe for a reversal. Not only is MACD converging from the new lows but the stochastic is badly oversold as well. This combination should result in at least a relief rally and we think it could mean the bottom is near. Price action is approaching a potentially strong support target so we are not confident of a deeper decline, at least not now. Assuming price action bounces from this level we’d like to see a confirmation of support before getting bullish. In the absence of that, price action may easily fall below $131.50 and move down to lower lows.

Should you invest $1,000 in SiteOne Landscape Supply right now?

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