Envela Corp. (ELA) — with a market cap of $135 million — is a unique business that is based on the recycling or reselling of products, also known as “re-commerce,” explains Ryan Irvine, founder of KeyStone Financial.

Envela has two segments, DGSE, which is business to consumer, and ECHG, which is business to business. The DGSE  segment encompasses Envela’s gold, silver, bullion, jewelry, watch, and luxury item purchasing, reselling, and refurbishing business.

Envela has created a significant turnaround over the past 5-years by focusing on its core competencies and operating almost exclusively within the more profitable and less risky segments of its markets. Impressively, management has taken EPS from $0.02 in 2018 to an expected $0.49 in 2022.

While the company tax losses will run off in early 2023 (tax rate ex. 21%), making for tough reported earnings comparables through 2023 (against untaxed earnings in 2022), if management continues to execute, we expect revenue and operating earnings growth in the range of 15%-20% at minimum in 2023 and moving into 2024 where reported earnings should accelerate meaningfully once again.

Given the fact the company is trading with a rather modest multiple of just under 10 times the 2023 expected EPS, it appears an opportune time to begin accumulating Envela’s shares over the next year.

While the business is not without risk, it holds a higher-than-average degree of recession resistance which is also a bonus in the current environment. The management team appears focused on continuing its very disciplined and measured approach to growth by acquisition.

While the company will continue to be active, management will only make acquisitions that are both immediate and long-term accretive to earnings on a per-share basis. If the acquisition does not check those boxes, Envela will not move forward just to create top-line or revenue growth. Long term, we appreciate this discipline and shareholders should welcome the approach.

As Envela continues to scale and begins to communicate better to the market, it can trade at the higher comp group multiples as investor awareness builds and fundamentals improve.

At present, trading at ~10 times the expected 2023 EPS, with a solid growth path ahead of the business looking 2-3 years forward, the stock appears to be in an attractive range for risk-tolerant clients to begin purchasing position looking at a minimum of 2-3 years holding period. We see a mid-term buying range of $4.75-$5.35. Be patient and place limit orders in that range over the next 3-6 months.

Learn more about KeyStone Financial here…