Josh Kohn-Lindquist, The Motley Fool
3 min read
In This Article:
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Resale goods franchisor Winmark has seen its shares drop 16% this week.
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There was no direct news causing this drop, but macroeconomic data may be weighing on the stock.
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Furthermore, Winmark's valuation has become quite lofty, especially considering its slowing growth rates.
Shares of leading resale goods franchisor Winmark (NASDAQ: WINA) were down 16% this week as of 12:30 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
As of this writing, there appears to be no direct Winmark-related news causing the steady decline in share price. While this lack of news isn't uncommon for the notoriously quiet operator -- CEO Brett Heffes typically only offers a one-sentence comment on each quarter's results -- the 16% drop is eye-catching.
Ultimately, however, I believe this sell-off stems more from the company's increasingly stretched valuation and the market's worries over recent data on softening consumer spending.
Winmark -- which dubs itself "The Resale Company" -- utilizes a franchise operating model to extend the lives of millions of items, including toys, clothing, sports equipment, musical instruments, and more.
Home to over 1,300 locations, Winmark franchises five store brands: Play It Again Sports, Plato's Closet, Music Go Round, Once Upon A Child, and Style Encore.
Quietly becoming a leader in the circular economy, Winmark has been a 130-bagger since 2000. However, over the last decade, the company's sales and net income have increased by only 3% and 8%, respectively, annually.
Over the same time, Winmark's price-to-earnings (P/E) ratio rose from roughly 20 in 2015 to nearly 40 prior to this week's drop.
This combination of below-market growth and above-market valuation left the company vulnerable to a sell-off like we saw this week.
With that said, Winmark tends to be beloved by its franchisees, the communities in which it operates, and its customers -- which is why it remains one of my core holdings.
Still trading at a hefty 34 times earnings, however, Winmark may need more robust consumer spending figures to return to new highs.
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