Investment action: add ~1.3% to Tandy Leather and make it a 3% position. Bought at an average price of USD 4.2

I first purchased Tandy Leather Factory shares in Dec 2019 and it has been a bumpy ride since then. They are still mired in the accounting restatement crisis while being hit by COVID-19. This resulted in delisting and now still trading on the OTC market.

They finally announced a final bit of positive news on 21 Apr 2021. See link here

Tandy Leather announced that its sales for 1Q 2021 is USD 21.3m & have a net cash position of USD 10m. This is a very favourable quarterly revenue trend coming out from covid-19. Generally speaking, Tandy managed the COVID situation well and grew its eCommerce operation significantly.

Strong revenue recovery implies a few things:

  • Healthy demand for leathercraft
  • Strength of online channel and specialty retail category such as leathercraft is very well suited to eCommerce

What I don’t know is how much revenue is driven by retail vs wholesale activity

There is a scenario that Tandy use online as an efficient sales channel to expand the reach and only use stores for customer service. In this scenario, we could see higher organic growth even post-pandemic.

But the risks are still clearly there. 1) financial restatement still not done yet & 2) two CFO resignations within one year

However, given that Tandy was able to execute a USD 1m share buyback in Jan 2021 and still maintain a sizable cash balance. Plus they actually survived COVID. The risk of fraud is reduced.

Based on q1 numbers, it seems like Tandy could be doing 80-85m annual revenue in 2021. assuming 7.5% net margin (historical margin is 5-10%), then Tandy could be making 6-8m of net profit this year. The current market cap is USD 36m with 10m of net cash, the implied earning multiple is 6x. Hopefully, once restatement is done, we could see substantially higher share buyback activity