Avalon Holdings Inc. (AWX) - Q1 Earnings Were Good

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence. This stock has a market cap of less than $14 million.

For those investors who are unfamiliar with Avalon Holdings Inc (AWX), I will refer you to an article I wrote in March about this undervalued low float stock: Avalon Holdings Inc - A Low Float Stock .

AWX just released their earnings for Q1 and as I expected, they were good!  The company reported earnings of .18 a share vs a loss of (.21) a share in Q1 of 2020. Q1 is historically a very weak quarter for AWX as the winter weather in Ohio has a negative impact on both revenues and earnings. The fact that AWX reported a profitable Q1 bodes very well for the rest of the year. There were 2 primary factors behind the dramatically improved earnings report. First and foremost was the improved hotel and golf operations that was profitable in Q1 of 2021 compared to operating losses in Q1 of 2020.

The main driver behind the improved performance in this sector was the completion of the 30 million dollar renovations to the Grand Resort Hotel which enabled the company to raise both room rates and menu prices increasing both revenues and profitability. The other factor that helped improve earnings was the PPP loan forgiveness as the company showed a 1.1 million dollar gain from the extinguishment of debt related to this loan forgiveness. The good news as reported in the recent 10Q filing is that the company still has 900K that will be forgiven and give a boost to the Q2 earnings report!!!

Home - The Grand Resort

Q2 & Q3 are historically profitable reporting quarters for AWX although Q2 of 2020 was a very weak quarter as the company reported a loss of (.11)  a share on revenues of only $13 million as COVID-19 related government restrictions negatively impacted both revenues and earnings last year.  This will make the earnings comparisons for Q2 fairly easy and AWX should show dramatically better earnings than even the Q1 comparisons which were good!

The three primary reasons why I expect an even better earnings comparison is #1 that Ohio recently announced they will end all COVID-19 related health restrictions on June 2nd of this year which will allow the company to operate normally which should positively impact revenues moving forward.  #2 as discussed above the new renovations at the Grand Resort have allowed the company to raise both room rates and menu prices and will offer improved revenues and earnings comparisons to Q2 of 2020. Lastly, the PPP loan forgiveness will boost 2021 Q2 by .23 a share. 

Avalon will report its Q2 earnings sometime in early August and my conservative expectations for this next earnings report is an earnings range of .35 to .50 a share on revenues of $16-18 million which will be a dramatic improvement over Q2 2020. That will set the stage for the company to be heading into their historically best quarter Q3 with a solidly profitable first half. My expectations for full-year earnings to be in a range of $.75 to $1.00 per share on revenues of $60-65 million which is a dramatic improvement from not only full year 2020 earnings but even compared to previous years.

The company also disclosed they created a new company devoted to building a medical spa business. This may impact future revenues and profitability in the future.

Here is an excerpt from the disclosure in the recent 10Q:

Avalon Med Spa, LLC

In March 2021, Avalon created a new Ohio limited liability company, Avalon Med Spa, LLC. Avalon Med Spa, LLC will provide elective appearance improving nonsurgical aesthetic services under the supervision of a licensed physician. Avalon Med Spa, LLC, offers investment opportunities to accredited investors by selling membership units through private placement offerings. The monies received from these offerings, along with internally contributed capital, will be used to purchase medical spa equipment and construct the facilities necessary for operation. Avalon will manage all decisions regarding the medical spa operations for a percentage of the gross revenues.

In March 2021, Avalon made a capital contribution of approximately $0.5 million, which included cash and certain equipment, in exchange for membership units of Avalon Med Spa, LLC. On March 31, 2021, Avalon owns 100% of Avalon Med Spa, LLC. Avalon Med Spa, LLC was not in operation on March 31, 2021. The operating results will be included in Avalon’s golf and related operations segment.

They also will be pursuing a court case against the Ohio Department of Land and Natural resources related to the suspension of their wastewater injection wells. According to their recent 10Q filing, that case is scheduled to begin in September of this year.

On March 18, 2019, Avalon received notice that the 11th Appellate District Court in Trumbull County, Ohio issued a summary judgment in favor of the Ohio Department of Natural Resources in the writ of mandamus action that resulted from the suspension order of the Company’s saltwater injection well. The decision was appealed to the Supreme Court of Ohio on April 5, 2019. Oral arguments in the case occurred on April 7, 2020. On September 23, 2020, the Supreme Court of Ohio ruled in favor of the Company. The Supreme Court of Ohio reversed the decision of the 11th Appellate District Court and remanded the case back to that court for a trial on the merits. The Company is currently preparing for a trial which is scheduled to occur in September and October 2021. This case if they prevail could net the company $5 million+

They are also awaiting final judgment on their court case against Guy Gentile which if they win will net the company $4 million+.

Considering the positive earnings momentum of this company and the potential future earnings catalyst from a legal victory combined with the real growth of their hotel and golf operations the current valuation of AWX stock price seems extremely undervalued.

With a current market cap of only 16 million and a 2021 expected PE of less than 8... It is my opinion AWX is not going to stay this cheap for long.

Disclosure: I currently have a long position in this stock. This article is my personal opinion. I am not a financial advisor... please do your own research and due diligence before buying ...

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Edward Dostillio 2 years ago Contributor's comment

AWX's Grand Resort getting more positive publicity


Adam Reynolds 2 years ago Member's comment


William K. 2 years ago Member's comment

Interesting but a bit confusing as to how the salt water injection wells relate to the issue.

Edward Dostillio 2 years ago Contributor's comment

The company is also a waste management company... a few years ago when fracking was big in Ohio & PA.. they opened up injection wells to dispose of waste water from fracking. They were shutdown by Ohio DLNR because of minor earthquake in Ohio. read their 10Q for more details. They have a pending lawsuit that could net the company recovery costs on this wells of 6-8 million.. which would boost earnings and strengthen balance sheet.

Wendell Brown 2 years ago Member's comment

I still don't understand why this stock spiked this time last week. But your article doesn't reflect that it's on a downward slide all week this week.....

Edward Dostillio 2 years ago Contributor's comment

If you look at the yearly chart it has been doing those daily spikes on heavy volume. If you bought at higher prices I suggest you buy some at these lower prices to average down your cost. The overall trend is still higher as it has been setting higher highs and higher lows. I think the downward slide is over. The key to this stock is just be patient and be willing to buy more on any weakness.

Charles Howard 2 years ago Member's comment

Good #Avalon coverage. I am a big believer in $AWX.

Edward Dostillio 2 years ago Contributor's comment

Thanks! I am a big believer as well. I Have owned the company since 1999 and it currently is my largest position

David Reynolds 2 years ago Member's comment

Hm, the lowest price in '99 was $5 a share and except for the spike in 2007, doesn't look like you've had any chance to take profits...sorry, but I can't help but be skeptical that it's your largest position because you're still hoping it will turn around and tryiing to get others on the bandwagon. Maybe try Reddit? ;-)

Edward Dostillio 2 years ago Contributor's comment

Sorry Dave but your way off base here, My initial position in 1999 was at $5 but added more at $3 and more at $2 before the stock began to move up in 2003. from 2003-2007 it moved to $10 and I sold most of my position at a very nice profit. In the 2008 selloff I started buying at $4 and bought all the way down to $.98 cents the all time low on the stock, that was my buy. The stock eventually rebounded all the way to $6 and I took some profits on the way up but probably should have taken more. The oil price collapse and the shut down of the waste water wells by the ohio DLNR hit the stock hard and it traded in the $2 range for awhile where I was an aggressive buyer. I made a killing on the stock in 2018 where in 4 days the stock traded from $4 to $36 and back to $4. I liquidated 76K shares.. The spike was caused by guy gentile... read my other article. I started buying shares back at $4 and built a huge position in this stock during the pandemic selloff in March 2020. I was the low print buyer again at $1.18 and bought a ton of shares below $2. I currently am long 145K shares at an avg cost around $2.39 and its actually a lot lower if you take into account the 96K in realized capital gains I have already booked in the stock this year. I always hold part of my position for the long term and trade part of my position on these crazy spikes that it has been having this year. selling the spike up and buying back if it goes back down. The company has grown quite a bit since my first purchase in 1999 and is incredibly undervalued at these price levels which is why I will add to my position on any further weakness in the stock, although I personally think it is done going down for the time being and the way this has been trading this year another big spike move to higher highs and higher lows is coming and probably before the next earnings report in August.

If you want proof of my long position and cost give me an email address and I will send you proof of both the position I hold, the cost basis and the 96K in profits I have booked this year. I will even send you proof of the 25K shares I bought the last few days at prices ranging from 4.40-3.55 because I am still convinced the stock is way undervalued!!!

David Reynolds 2 years ago Member's comment

Thank you SO MUCH for the transparency. Wow it is so terrific to really get an insight into positions. I guess we are all so damn cynical these days and I am sorry if I offended you in any way. I will definitely reread and reconsider.

Edward Dostillio 2 years ago Contributor's comment

No worries, These days its probably best to be a little cynical. I am not offended in any way. This stock truly has been an incredible swing trade stock for most of this year, combined with offering great longer term growth opportunities. The best of both worlds and I never have to worry about buying the dips as the price/sales and price/book are so low even if they filed Bankruptcy the liquidation value of the assets is north of $10/share after paying off liabilities