Should I buy Made.com shares?

Made.com shares were listed last week. Royston Roche makes a deep dive analysis to understand if this is the right stock for his portfolio.

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Made.com (LSE: MADE) shares got listed on the London Stock Exchange on 16 June 2021. However, the shares are off to a slow start. They have been trading below the initial public offering (IPO) price of 200p during the conditional trading period, which ended on Friday.

Should I consider buying Made.com for my portfolio as the stock is now available for investors like me to buy in an Investment ISA?

What is Made.com?

Made.com is a British online furniture and homeware retailer. It sells its products across the UK and other European countries. It also has about seven showrooms. The company is known for its exclusive design and affordable products. It was founded in 2010 by Brent Hoberman and Ning Li. Hoberman is the co-founder of lastminute.com, which was later sold to Sabre Holdings.

Fundamentals

Made.com’s revenue growth is good. Gross revenue grew at a CAGR (compound annual growth rate) of 27% from 2018 to 2020. In the first quarter of 2021, gross revenue grew by 64% to £110m. The management is eyeing strong future growth, especially in Europe. Continental Europe constitutes around 48% of total sales, and the rest is from the UK. 

The company is yet to make profits. Net loss increased from £4.0m in 2018 to £7.6m in the year 2020. However, operating cash flows have been improving, which is positive. They were £32.2m for the year 2020, and £26.8m for the most recent quarter.

The company has a stable balance sheet. It had cash of £74.5m at the end of March 2021. Post-IPO, the company is expected to have cash of £154.9m after paying the existing term loan of £10m. This is another reason for me to like Made.com shares. I like companies with good operational cash flows and low debt.

Risks to consider in investing in Made.com shares

Some of the risks include maintaining the brand value. Even though the company has maintained a UK Trustpilot rating of 4.3/5, there are a few recent complaints that can be seen online. Some of the concerns raised are late delivery and poor quality of products. If the company fails to address these issues, I feel that the company’s reputation could be badly hit.

Made.com has not been profitable since its inception. It also faces tough competition from big players like Ikea and other companies like Dreams, DFS Furniture and ScS. If the company fails to be profitable, then this could hit Made.com shares to the floor.

The company has limited years of operation. Growth is usually strong in the initial years, and competition increases when companies grow in size. Also, the company is just newly listed. Sometimes listing of the company’s shares is used as a vehicle for early investors to profit. 

Final view on Made.com shares

I like the company’s strong revenue growth and I believe that online retailers will have strong growth. In addition, the operating cash flows are positive, which is a big plus. However, since Made.com shares are recently listed, I will keep the stock on my watchlist for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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