Kits Eyecare is heading even higher, says Beacon

The stock has already had a tremendous 2023, but investors can expect even more upside from Kits Eyecare (Kits Eyecare Stock Quote, Charts, News, Analysts, Financials TSX:KITS), according to Beacon Securities analyst Doug Cooper, who provided an update to clients on Monday. Cooper said with positive EBITDA likely arriving this year and demographics in its favour, the growth path ahead for KITS is clear.

Vancouver-based Kits, which has a digital eyecare platform in the US and Canada and manufactures progressive and corrective lenses and frames under the KITS brand, announced preliminary second quarter figures on Monday, saying its Q2 revenue was up 38 per cent year-over-year to $30 million. Kits said it finished the quarter with a cash balance of $19.8 million and that repeat customers contributed to about 60 per cent of revenue. 

“Our spectacular, organic growth continued through Q2 as we report another record quarter of top-line growth, while maintaining a healthy and growing balance sheet,” said Roger Hardy, co-founder and CEO, in a press release. 

“Growth continues to be fuelled by word-of-mouth, and the best retention rates in the category. We continue to see a secular trend of vision corrected customers moving online for all vision related products, and demand for our KITS glasses and contact lenses remains strong,” he said.

So far this year, KITS shares have about doubled, going from $2.68 on January 1 to now around the $5 range. 

Cooper sees even further gains for the stock and reiterated with his report a “Buy” rating and $8.00 target, which at press time represented a projected one-year return of 57 per cent.

“We continue to believe the optical market may be hitting its sweet spot in terms of growth with the Millennials entering their glasses wearing years. Furthermore, the online penetration of the market, which is the lowest of any major retail category, is also set to expand through both the Millennial demographic having comfort buying online as well as technology advancements that ease the online selling process. KITS is the best company to benefit from both of these trends,” Cooper wrote.

On the preliminary report, Cooper said the projected cash of $19.8 million would represent an increase of about $0.3 million over the previous quarter and stands as a “clear indication” that Kits’ operations have turned free cash flow positive and that the

majority of the company’s capital expenditure is behind it. 

“Recall that the current infrastructure of its optical lab should enable the company to reach sales of $200+ million including over $100+ million in glasses revenue,” Cooper said.

On revenue, Cooper is forecasting Kits to hit $112.4 million in 2023 and on adjusted EBITDA he is forecasting $4.0 million.