Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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Thematic (Sector/Industry)

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<li>Valuations for direct selling stocks remain at or near historical lows following a very difficult year for the group in 2023.</li>
<li>The 12-month prospective relative P/E ratio for our proprietary Direct Selling Index closed 2023 at a 43% discount to the market, having entered the year at a 35% discount to the market.</li>
<li>This relative multiple contraction was despite a slight improvement in the prospective absolute P/E ratio to 11.2x at the end of 2023, up from 10.9x at the beginning of the year, since the multiple expansion for the S&amp;P 500 was much greater, having expanded nearly 3 full multiple points on the year to close out at approximately 19.7x forward earnings.</li>
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Valuations for direct selling stocks remain at or near historical lows following a very difficult year for the group in 2023.
The 12-month prospective relative P/E ratio for our proprietary Direct Selling Index closed 2023 at a 43% discount to the market, having entered the year at a 35% discount to the market.
This relative multiple contraction was despite a slight improvement in the prospective absolute P/E ratio to 11.2x at the end of 2023, up from 10.9x at the beginning of the year, since the multiple expansion for the S&amp;P 500 was much greater, having expanded nearly 3 full multiple points on the year to close out at approximately 19.7x forward earnings.


Direct Sellers Valuation Update - Relative Valuations Remain at Generational Lows

<ul><li>This year marks the fifth year in the most current downcycle for the stocks we monitor in the direct selling channel, with the brief exception of the pandemic-related benefits they reaped in 2H20 and 1H21, as a result of their product focus on health and wellness as well as their direct-to-consumer business models during the widespread lockdowns.</li><li>Even those benefits have been mostly given back in 2022 and 2023 as consumers moved from spending on goods for the home and body to services and experiences as mobility returned to the global marketplace</li><li>Below are the five key trends we are looking for to drive this group in 2024.</li></ul>

This year marks the fifth year in the most current downcycle for the stocks we monitor in the direct selling channel, with the brief exception of the pandemic-related benefits they reaped in 2H20 and 1H21, as a result of their product focus on health and wellness as well as their direct-to-consumer business models during the widespread lockdowns.Even those benefits have been mostly given back in 2022 and 2023 as consumers moved from spending on goods for the home and body to services and experiences as mobility returned to the global marketplaceBelow are the five key trends we are looking for to drive this group in 2024.

2024 Trends for Direct Sellers - Looking for an Inflection Point

Equity Research Focusing on the Consumer Sector, Small Cap Consumer Research

Small Cap Consumer Research

Equity Research Focusing on the Consumer Sector

Small Cap Consumer Research, LLC is a leading company-sponsored equity research provider focusing on the consumer sector (apparel, brand licensing and specialty retailing segments).

Equity Bottom-Up

Betterware de Mexico Sab de CV / Equity Bottom-Up

<ul><li>We are reiterating our Buy rating, $22.50 price target and projections for Betterware de Mexico after reviewing the October catalog.</li><li>With October another month of material YoY SKU declines and a focus on higher overall pricing, we believe it is increasingly obvious that Betterware management is focusing the overall business on driving higher returns.</li><li>Further, even against materially tougher comparisons, the overall level of discounting has continued to tick down, which speaks to limited need to clear goods.</li></ul>

We are reiterating our Buy rating, $22.50 price target and projections for Betterware de Mexico after reviewing the October catalog.With October another month of material YoY SKU declines and a focus on higher overall pricing, we believe it is increasingly obvious that Betterware management is focusing the overall business on driving higher returns.Further, even against materially tougher comparisons, the overall level of discounting has continued to tick down, which speaks to limited need to clear goods.

BWMX: Snapping the Catalog: Focusing on Returns; Reiterate Buy, $22.50 PT

<ul><li>We are reiterating our Buy rating, $22.50 price target and projections for Betterware de Mexico after reviewing the September catalog.</li><li>September's offerings reflect a continued shift to higher priced items, with the average price the highest we have recorded; further the level of discounting continues to materially shrink from peak September 2023 levels.</li><li>With SKU levels normalizing, we believe the overall Betterware message is of management focusing on driving stronger overall returns and revenue.</li></ul>

We are reiterating our Buy rating, $22.50 price target and projections for Betterware de Mexico after reviewing the September catalog.September's offerings reflect a continued shift to higher priced items, with the average price the highest we have recorded; further the level of discounting continues to materially shrink from peak September 2023 levels.With SKU levels normalizing, we believe the overall Betterware message is of management focusing on driving stronger overall returns and revenue.

BWMX: Snapping the Catalog: Creating a New Normal; Reiterate Buy, $22.50 PT

<ul><li>We are reiterating our Buy rating, projections and $22.50 price target for Betterware de Mexico after reviewing the August catalog.</li><li>August saw the continuation of moderating YoY price increases, but also registered the lowest SKU count in 2025, the deepest % reduction in YoY discounting rates and one of the lowest levels of new products.</li><li>As such, we wonder, after a decent 2Q for the Betterware division, if management is shifting the key launches for Fall/Holiday to September and utilizing August to maximize returns, as opposed to clearance, from prior periods.</li></ul>

We are reiterating our Buy rating, projections and $22.50 price target for Betterware de Mexico after reviewing the August catalog.August saw the continuation of moderating YoY price increases, but also registered the lowest SKU count in 2025, the deepest % reduction in YoY discounting rates and one of the lowest levels of new products.As such, we wonder, after a decent 2Q for the Betterware division, if management is shifting the key launches for Fall/Holiday to September and utilizing August to maximize returns, as opposed to clearance, from prior periods.

BWMX: Snapping the Catalog: Tweaking the Model; Reiterate Buy, $22.50 PT

Mexico

Betterware de Mexico SAB de CV sells household products. The Company offers furniture, sink, electronics, utensils, laundry equipment, cleaners, bath accessories, personal care, and other goods. Betterware de Mexico serves customers in Mexico.

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Betterware de Mexico Sab de CV (BWMX US)

Direct Sellers Valuation Update - Relative Valuations Remain at Generational Lows

The 12-month prospective relative P/E ratio for our proprietary Direct Selling Index closed 2023 at a 43% discount to the market, having entered...

Water Tower Research

2024 Trends for Direct Sellers - Looking for an Inflection Point

This year marks the fifth year in the most current downcycle for the stocks we monitor in the direct selling channel with the brief exception of...

Water Tower Research

BWMX: Snapping the Catalog: Focusing on Returns; Reiterate Buy, $22.50 PT

We are reiterating our Buy rating, $22.50 price target and projections for Betterware de Mexico after reviewing the October catalog. With October...

Small Cap Consumer Research

BWMX: Snapping the Catalog: Creating a New Normal; Reiterate Buy, $22.50 PT

We are reiterating our Buy rating, $22.50 price target and projections for Betterware de Mexico after reviewing the September catalog. September's...

Small Cap Consumer Research

BWMX: Snapping the Catalog: Tweaking the Model; Reiterate Buy, $22.50 PT

We are reiterating our Buy rating, projections and $22.50 price target for Betterware de Mexico after reviewing the August catalog. August saw the...

Small Cap Consumer Research

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