Analyst: YogaWorks Could Stretch To Almost 100% Upside

Yogaworks Inc (NASDAQ: YOGA), a nano-cap provider of yoga instruction through company-owned studios and digital media, offers investors a compelling risk-to-reward profile, according to Imperial Capital's George Kelly.

Kelly initiated coverage of Yogaworks' stock Friday with an Outperform rating and $5 price target, which implies a nearly 100 percent upside from Thursday's closing price of $2.77. (See Kelly's track record here.)

Yogaworks boasts a strong management team, brand and capital to acquire new studios and build a cash flow generative yoga business, Kelly said. A strategy of acquiring new studios is a viable one, especially when considering there are few other competitors that have similar scale — and most of the competition consists of mom-and-pop studios, he said. 

Over the longer term, a portfolio of mature yoga studios will generate a stable EBITDA with little ongoing capital expenditure, the analyst said. Imperial Capital projects that onsolidated margin and cash flow will improve over time as the company scales up.

By the end of 2019, the recently IPO'd company is projected to oversee 150 studios across the U.S., an increase from its current studio count of 62. At the same time the company is expected to post a positive consolidated EBITDA, although management may need additional capital in late 2018 or 2019 to fund its acquisition activity, Kelly said. 

Imperial's $5 price target is based on the Kelly's 12.6x multiple on 2019 EBITDA and 0.5x 2019 revenue.

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