Toughbuilt Industries (NASDAQ: TBLT) has seen its share price soar at the start of the week after investors were pleasantly surprised by its third-quarter earnings. The company registered impressive revenue growth, but costs continue to be a concern.
With further sales growth on the horizon, is TBLT stock a good investment?
What is Toughbuilt Industries?
Toughbuilt Industries designs, develops, manufactures and distributes home improvement and construction products for the building industry in the United States and internationally.
The business offers tool pouches, tool rigs, tool belts and accessories, tools bags, totes, various storage solutions, office organizers and kneepads.
The company also provides sawhorses, miter saws, table saws, roller stands, and workbenches; sawhorse/jobsite tables; and digital measure and levels.
It offers its products under the TOUGHBUILT brand through various home improvement big box stores, professional outlets, and direct marketing to construction companies and trade/wholesale outlets.
The company was formerly known as Phalanx and changed its name to ToughBuilt Industries in December 2015. ToughBuilt Industries was incorporated in 2012 and is based in Lake Forest, California.
TBLT Stock Financials
The company’s newly released earnings showed that revenues for the three-month period ended 30 September came in at $30.2m, a 76% year-on-year increase. Toughbuilt attributed this to an expansion of existing customers and their recurring orders, adding new customers globally, launching more products in different categories and an increase in sales through Amazon (NASDAQ: AMZN).
Additionally, operational expenses were reduced from $15.2m to $14.7m, as the business said it has been able to cut shipping and marketing costs.
Even so, its cost of goods sold (COGS) almost doubled from $11.8m to $22.3m due to a massive increase in the cost of selling metal goods. But its loss from operations was cut from $11.4m to $9.5m.
Finally, the business benefited from a change in the fair value of warrant and preferred investment liabilities to the tune of $19.1m.
This meant the business was able to swing to a profit. Toughbuilt recorded a net income of $0.54m for the period, compared with a loss of $9.0m in the same period in 2021. The business said it had a working capital of $28.5m as of 30 September.
Across the year to date, the company’s share price has tanked, falling by 93% since the start of 2022 and by 95% over the last 12 months. This period has seen TBLT shares fall as low as $1.34 and as high as $78.15.
TBLT Growth Potential
While Toughbuilt’s earnings release highlighted its financial results, it also saw the business outlining its growth potential.
For example, the business said it had expanded the distribution of 84 ToughBuilt products in all Sears’ Mexico locations, totaling 96 storefronts. Other expansions of the business’ sales operations saw it increasing its reach in Peru, Colombia, Germany, Great Britain and Switzerland.
The increased scope of the business and the launch of new product lines is expected to bring further revenue growth.
Toughbuilt CEO Michael Panosian commented:
We remain confident in our long-term strategy, building upon our partnerships and relevant opportunities to grow our market share in different categories. We expect revenues to continue to increase rapidly as our recently announced product introductions and distribution partnerships ramp-up.
We remain focused on delivering profitable growth and are targeting profitability in 2023.
TBLT Investment Risks
Cash burn has been a problem for Toughbuilt Industries for some time. While the business is rapidly growing revenues and is targeting sustained profitability in the new year, costs seem more than capable of keeping pace for the time being.
With a significant amount of share price dilution having already taken place and the business now speaking optimistically about reaching profitability next year, it’s possible that the business has managed to stop the rot.
However, the company remains reliant on rapidly accelerating revenues, and any damage to these in the coming quarters could throw a major spanner in the works. In short, it looks like make or break time for Toughbuilt Industries.
Is TBLT Stock a Good Investment?
While the company scored an eye-catching profit in the third quarter, it’s still running a deep operational loss. Sales are growing at an impressive rate, and the business has a significant opportunity to grow into new markets, but it must find some way in which to reign in control of its costs.
Otherwise, there is a serious risk that the business will run out of money or must engage in more of the funding efforts that have decimated its share price across 2022.
That brings us to the share price.
While TBLT’s share price boost at the start of this week is eye-catching, the stock is still light years away from where it was this time last year. It’s hard to confidently back investing in any stock which has tumbled so far in such a short space of time.
