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Introduction

Traeger (COOK) was a fast-growing business, cooking with growth rates of 29% per year. But a recent drop-off in volumes for the start of 2022 may slow this growth. On top of this, the company has seen costs skyrocket, from not only increased freight costs but mostly due to an employee stock incentive program. This program has eaten away profits, which may not be a problem if growth persisted. At 25x P/E and 0.66x book value per share, Traeger would look like a good investment if growth patterns persisted and profits were relevant. 

The Company Growth Story?

Traeger saw incredible growth from 2019 to 2021 with a CAGR of 29% in revenue per year. But this growth has not directly translated to profits for the business. In the past fiscal year, Traeger saw revenue growth of 44% but operating and net income declines of 198% and 378% each. All segments saw growth; Grills grew 39%, Consumables 13%, and Accessories 205%. So why has the bottom line declined? It's due to rising costs of revenue, which has decreased the gross profit margin by 4%. This is a result of increased freight costs and supply chain issues. On top of this, the business is undergoing the acceleration of vesting of class B stock, raising equity-based compensation. Altogether, SG&A costs increased by 125% in 2021. This equity-based compensation expense is part of the company's Incentive Award Plan, which is offered to employees to retain and award talent. Therefore, this is not a one-off issue.

This Year

And this can be seen in quarter one 2022 results. The company did see revenues decline by 5%, and gross profits decrease by 17% due to the same factors as 2021. But the SG&A was up 71% due primarily to the Incentive Award Plan. This does not bode well for an investor right now unless this business can scale very efficiently to offset this company initiative. For the quarter, the operating and net income were down 106% and 122%, respectively. The Grills segment revenue for the quarter was down by 16% and Consumables by 3%, attributable to lower volumes. The Accessories segment grew 109% due to the acquisition of MEATER smart thermometers. Overall, low volumes drove revenue down 5% this quarter. This paired with the RSU cost for the incentive plan has made this company operate at a loss.

Balance Sheet

Looking at the balance sheet, Traeger has ample liquidity and a very low debt load. The company has a current and quick ratio of 1.75x and 0.93x, showing the ability to pay off debt now if needed. Also, the company only has a debt-to-equity ratio of 1.03x, showing a low debt load to manage and service. Overall, Traeger can sustain these net losses for a while with this balance sheet.

Valuation

As of writing, Traeger trades around the $3.50 per share level. At this level, Traeger has a P/BV of 0.66x using the book value of $5.28 per share. If the estimated ES for 2022 comes in as expected at $0.14, Traeger would be trading at a 25x P/E. Honestly, this is not a bad price to pay if the company can keep scaling at 29% per year. But many factors are showing this may not be the growth stock that was expected. If growth falls off, the company is not worth what the price is now.

Conclusion

While Traeger has seen impressive growth over the past few years, it may be slowing down. With revenues down in the first quarter of 2022, and the company's incentive plan eating up costs, it seems that profit growth is a far distance away. If the company can keep scaling at the 29% rate it has, the current price may be worth it, but many questions about profitability are a hindrance to investment.

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