Is TSX:FOOD a buy right now?

Good not great.

That’s the assessment of Goodfood Market (Good Food Market Stock Quote, Chart, News, Analysts, Financials TSX:GOOD) from an investment standpoint right now, says Desjardins analyst Frederic Tremblay.

On April 16, FOOD reported its second quarter results. The company posed Net Income of $1.39-million on revenue of $39.8-million, a topline that was down 5% over the same period last year.

“The first half for fiscal 2024 showcased the efficient operating foundations we have laid, enabling adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] to grow and reach a total of $9-million over the last 12 months,” said CEO Jonathan Ferrari. “These results have driven two key vectors of value creation: cash flow generation and deleveraging. This quarter marks the second quarter in a row with positive adjusted free cash flow and our last 12 months have delivered adjusted free cash flow of more than $7-million. In the past nine months, we have also reduced our total net debt to adjusted EBITDA ratio nearly 70 per cent from eight times nine months ago to a little over two times now. Combined, the cash flow generation and improved leverage help better position Goodfood to manage its capital structure and consider various capital allocation options as we strive to generate growth and enhance shareholder value.”

The analyst summarized the quarter.

“2Q results featured a beat on adjusted EBITDA as cost discipline contributed to profitability, cash flow and leverage improvements,” he said. “Looking ahead, we are slightly more cautious on the timing of the return to top-line growth given a tough consumer spending environment. Nonetheless, our adjusted EBITDA forecasts move higher. Management’s willingness to explore small M&A opportunities is intriguing, but we believe the company will need to be very selective.”

Tremblay ran down some reasons for caution around FOOD.

“Top-line growth remained evasive in 2Q as a decline in active customers offset higher revenue per customer,” he wrote. “That said, cost discipline led to record gross margin of 43.0 per cent. Adjusted EBITDA of $3.5-million was ahead of expectations and in positive territory for a fifth consecutive quarter. While the active customer base had grown in 1Q, the momentum did not carry into 2Q (down 5.6 per cent quarter-over-quarter). In this context, Goodfood remains disciplined on marketing spend and unit economics. In our view, it could be challenging for the company to show a persistent upward trajectory in active customers until the environment becomes more supportive of higher consumer spending and ready-to-eat meal kit demand. We now model year-over-year growth in the active customer base in FY25 instead of FY24.”

As reported by The Globe and Mail, the analyst April 18 reiterated his “Hold” rating but lowered his price target on FOOD from $0.75 to $0.65.