ToughBuilt Industries, Inc. (TBLT) develops home improvement and construction products under the TOUGHBUILT brand. Its stock gained 35.5% last week, driven by its 118% year-over-year increase in gross sales through Amazon.com, Inc. (AMZN) in the first half of 2021. 

However, its shares have slumped 11.1% year-to-date and 21.3% over the past three months. This decline can be primarily attributed to a substantial loss reported by the company in the first quarter of 2021.

TBLT’s stock is currently trading 60.4% below its all-time high of $1.78, indicating short-term bearishness. In addition, TBLT is currently trading below its 50-day and 200-day moving averages of $0.76 and $0.91, respectively, which indicates a downtrend.

Here is what we think could influence TBLT’s performance in the near term:

Industry Headwinds

Since suffering a slump caused by the COVID-19 pandemic, the building material and construction industry has been able to bounce back by adopting advanced technology and innovative solutions. However, the industry still faces  challenges. The increasing cost of raw materials, the slowdown in construction projects due to  supply chain disruptions or cost overruns, coupled with labor shortages, could still be roadblocks to growth. While TBLT has been making strategic investments in research and development to boost its manufacturing and distribution capabilities, the challenging environment has the potential to mar its growth.

Selling Shares to Raise Funds

This month, TBLT agreed with certain institutional investors regarding the sale of 46,029,920 shares of its common stock, along with warrants to purchase up to 23,014,960 shares at a $0.81  exercise price  per share. The company expects to generate roughly $40 million in gross proceeds from the offering. And it plans to use the net proceeds for working capital purposes. But the transaction will not only dilute the company’s ownership but also make its business look riskier to investors.

Inadequate Financials

TBLT’s gross profit margin for the first quarter, ended March 31, 2021, came in at 28.2%, compared to 38.9% in the year ago period. The decrease was due mainly  to an increase in cost of goods sold and expenses related to warehouse storage and  handling costs. Its operating expenses rose 88% year-over-year to $9.4 million, driven primarily by R&D expenses and marketing costs. The company’s loss from operations increased 68.1% year-over-year to $5.89 million, while its net loss rose 19.9% from the prior-year quarter to $6.05 million.

TBLT’s 28.6% trailing-12-month gross profit margin is 17.2% lower than the 34.6% industry average. Furthermore, its net income margin, ROA and ROE came in at negative 41.1%, 30.1% and 64.7%, respectively. Its 6.9%  trailing-12-month CAPEX/Sales  is 203.9% higher than the 2.3% industry average. And the company’s trailing-12-month cash from operations stood at negative 35.02 million.

POWR Ratings Reflect Bleak Prospects

TBLT has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. TBLT has an F grade for Quality and Stability. The stock’s negative profit margin and volatility are reflected in these grades.

Also, it has a C grade for Growth. This is consistent with the company’s bleak financial performance.

In addition to the grades we’ve highlighted, one can check out additional TBLT ratings for Sentiment, Momentum, and Value here. TBLT is ranked #81 of 85 stocks in the A-rated Industrial – Machinery industry.

Click here to view the top-rated stocks in the Industrial – Machinery group.

Bottom Line

TBLT’s increasing strength across all product lines and significant year-over-year sales growth through AMZN platform helped its stock soar last week. However, new challenges  that are popping up for the construction industry could make things difficult  for the company. Furthermore, its weak financials could limit its growth prospects. As such, the stock is best avoided now.

Click here to check out our Industrial Sector Report for 2021

TBLT shares were trading at $0.69 per share on Tuesday morning, down $0.02 (-2.65%). Year-to-date, TBLT has declined -12.99%, versus a 17.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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