Charles & Colvard (CTHR) operates as a fine jewelry company; its unique differentiator — moissanite — is core to its environmentally and socially responsible fine jewelry and fashion jewelry, notes Faris Sleem, low-priced stock expert and editor of The Bowser Report.
Although lab-created gems can carry a reputation of being “cheap” or “fake,” Charles & Colvard has built a high quality brand. Online engagement ring shopping will be a big catalyst moving forward and should keep driving online sales. Millennials make up a majority of online traffic and are clearly the key demographic.
The firm reported solid earnings and revenue growth in the third quarter. Its brand awareness combined with the demand spike for socially responsible jewels generated great financial results. Net sales increased to $9.4 million for the quarter, up 45% from $6.5 million in the same period last year.
Finished jewelry sales skyrocketed, which greatly contributed to margin improvements. Coincidentally, both the Online Channels Segment and the Traditional Segment saw net sales grow 45%.
Growing demand coupled with better profits have put CTHR in a great position to capture more market share. In addition to its recent income growth, CTHR’s balance sheet has never looked better. Its assets outweigh liabilities 5.6 to 1. And, cash of $19.6 million, or $0.66 cash per share, further highlights the low liquidity risk.
Management took advantage of the growing worldwide acceptance of lab-created gemstones and raised capital with an underwritten public offering of 6.2 million shares in 2019. The additional funds played a vital role in increasing brand awareness and further developing global omni-channel sales.
The business model is shifting from value to growth. While we believe around $2.20 and below is the optimal entry point, the stock is undervalued relative to its competitors. Strong fundamentals and an experienced management team make CTHR a unique long-term investment opportunity with strong potential.
