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  • kennethkohwk

PRTY looks possible for a 10%-20% upside as it tries to find a bottom.

Party City:

Pros: Low Valuation: 4.8x 2022 PE AND expected to grow margins in 2023 as well as the US is opening up.

Cons: It's got high debt. 1.2B debt vs 425M market cap. However, EV/EBITDA isn't that bad at 6.9x.

Insider buying as well.

Because of the high debt load, I don't expect the price to "fly" however, it's entirely possible for the price to go up 10-20%, especially if the price can clear the $3.9 level (technically speaking). If the price clears it, it can go to $4.50 at least.

Based on the current situation (low valuation + earnings growth and high debt), I expect a gradually upward sloping consolidation as they use their improving cash flows to buy down debt in the next 2 years.

The stock could be in a "bottoming" phase that might take 3-6 months as it seems too cheap on some measures, but until debt levels are successfully lowered it's not going to be on the robust uptrend the way ET and VST are. If you want to know why our start of the year picls ET and VST have greatly outperformed the markets (up 25% and 15%) since the start of the year vs -9% SPX and -40% ARKK. If you want to know the full thesis of both ET and VST as well as the fundamentals and technicals undergriding such investments, join the next cycle of our QuantZombie Ultimate Fundamentals, Technicals and Sentiment Class! Our last batch went really well. Drop us an email to register your interest and we will let you know when the next cycle will be.

Note that PRTY should be part of a diversified portfolio so don't go all-in. It should be considered as a good reward-to-risk short term bet. It's cheap, and will attract some value investors, but it may take a year to get to "robust" price apprecation like ET and VST did this year.

It looks like it trying to find a bottom, and although it might take 6 months for the markets to see cash flows improving and debts being repayed, it seems the reward to risk at this level looks positive for a bet. Addition: Conservative investors should keep an eye on this stock and especially look out for the rate in which they repay their debt, the more debt they can repay the closer to a bottom they will be. Also, a successful breakout of the 50 SMA may also indicate further short term upside as they try to find a bottom. EDIT (2022/04/25): Because the latest weakness to the broad markets is rumblings of a higher than expected rate hike, the risks to PRTY is higher because of their high debt load. As such, it's best to be patient and see how PRTY and the FED pans out this year. If the FED doesn't raise rates too quickly, and PRTY is seen to repay back significant amounts of debt, a bottom could be in the making. If not, waiting and see is prudent.

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Disclaimer: This site has been designed for informational and educational purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy any security which may be referenced upon the site. Please consult your own financial adviser to determine what trade is appropriate for you. See our full disclaimer here.


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