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The Rise, Fall and Rise of Nova Lifestyle Inc (NASDAQ:NVFY)

The Rise, Fall and Rise of Nova Lifestyle Inc (NASDAQ:NVFY)
Written by
Jim Bloom
Published on
November 16, 2017
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The past ten days saw a the share price of Nova Lifestyle Inc (NASDAQ:NVFY) both spike and plummet with the latter having considerably more weighting.The numbers during this period changed from $1.75 to over $3 in record time (one day) during which the traded volumes also rose from nil to nearly five million over a 24-hour period.This change can be seen in the chart below. NVFY Daily ChartThis drastic change had a serious catalyst behind it: the announcement of their financial performance.The company, as will be seen later in this piece, had an over 900% increase in net earnings over the third quarter of 2017, a drastic surge and music to the ears of market players. The market’s reaction was instantaneous as exemplified by the share price, rewarding the company for the news without necessarily reviewing the sustainability of this information.This therefore led to a reversal in the price. Currently, the company is trading at $1.95, almost at par with the share price before the release.Such movements have drawn us to the stock and led us to review the operations of NVFY as we try to drill into and assess the sustainability of their current financial position through reviewing their operational and strategic plans. Over the course of this read, we will outline our analysis of the latter and explain how this will impact their position going forward. Once done, our recommendation to investors on the company as an asset in their portfolio will be given.This being said, let’s begin the review by having a basic overview of NVFY.NVFY: The BirthNova Lifestyle Inc was founded in 2013 and their headquarters situated in Commerce, California. Currently, NVFY and its subsidiaries, designs, manufactures, markets, and sells residential furniture for middle and upper middle-income consumers worldwide.This was not always their business model; however, the change has been quite beneficial to them as is seen below.NVFY: The ProgressBack in 2016, the company began to change their business model.They began by divesting from their factories and franchising stores. This was in a bid to change their business model from a manufacturing-oriented asset-heavy company enterprise (which they were) to an operation-focused asset light entity. They were then to move their focus to modern product design, efficient distribution and marketing, all which they are doing extremely well at currently.The above has been in their favor in this year.The most recent news on NVFY has been quite positive. The company has been growing their brand, market share and earnings over the years, all which are shown below.They began with their win of the Asian-American brand. Here, one of the company’s main subsidiaries, Diamond Sofa, was selected as one of the top 5 Asian American Brands. The company which was formed in 1992, is one of the best recognized furniture brands in the United States, embracing innovative designs and urban contemporary styles.This ties to the type of company NVFY is: a strong brand with a winning spirit.The above is deemed to have had a significant impact on their sales at the Fall High Point Market this summer.The company further announced that they made record product offerings this year during the event described above. The event which took place between 14th and 18th October brought together 75,000 attendees and 2000+ exhibitors, attracting worldwide home furnishing retailers.This was taken by management as a sign that their significant marketing costs as well as the high cost of inputs is paying off as a result of the quality of output they bring to the market. They expect that they will continue to generate higher sales into the future and eventually dominate the industry as a result.The best news for the company, however, came from their financial performance.NVFY: The FinancialsNews of their financial performance, as detailed above, rocked the financial markets by storm. This was especially courtesy of their 900% increase in net income over the quarter, 3Q2017.Let’s start from the beginning.The company made over 10% increase in revenues to close the quarter at $33 million, a rise from $30 million in a similar period last year. Their gross profit margin rose 2.7% to close the period at 17.7%.They have also made a lot more in their incomes from operations which doubled in the current quarter up to $2.77 million.Finally, their net income increased this quarter to $2.9 million from the $202,699 they earned in the previous quarter.Such leaps are accredited with being the reason behind the share price surge as the market immediately reacted to this information. As a result, many may not have analyzed their fundamentals or future prospects thus causing a sentimental drive in the market to buy the share.As a result, whether the above is sustainable is discussed below.Our OpinionNVFY has some amazing record and even better financials. They have made some moves in the market so as to try and sustain this going forward.Given that their revenue position remained quite strong and their costs have been reducing slowly over time, the company’s fundamentals are expected to remain quite stable going forward.However, the rise experienced in the market was more of a shock than a catalyst-driven surge. We do not expect it to hold in the short-run. This being said, we do expect that the company will generate more going forward and are hopeful of a price uptick in the long run.As such, we recommend the company to investors with a long-term horizon.ConclusionNVFY has had a recent surge in their price, one which we do not expect to hold in the short term. However, we do expect that they will rise in the future given that their fundamentals are still strong. We reiterate our recommendation; long term investors will benefit from investing in this stock.We will be updating our subscribers as soon as we know more. For the latest updates on NVFY, sign up below!Disclosure: We have no position in NVFY and have not been compensated for this article.

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