YogaWorks has options, Street being too pessimistic, says Imperial Capital
Imperial Capital analyst George Kelly is surprised by the market reaction to YogaWorks' Q2 results earlier this month. While the results were disappointing, the 40% share decline and resulting $3M enterprise value "takes too myopic a view" of the company's outlook and strategy, Kelly tells investors in a research note. He believes "management has more options that appear little appreciated by the Street, options that would help drive scale without major dilution." The consensus view is that YogaWorks' cash burn will continue indefinitely, forcing management into a dilutive equity offering or risky financing, Kelly contends. He believes, however, that management has other options that could drive shareholder value. Other boutique brands could be interested in merging with YogaWorks, Kelly contends. Further, the analyst thinks YogaWorks' financial profile and brand "would be attractive to a larger fitness/leisure operator." He finds the Street too pessimistic on the stock and keeps an Outperform rating on the name with a $3.50 price target.