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Price Performance (1-year)
DHB’s product portfolio consists of sleep aid/anxiety relief formulations, and pain relief products. The company is also trying to license its patent-pending proprietary transdermal delivery technology platform to pharma companies.
Follows an asset-light model by outsourcing manufacturing and packaging to entities in North America. Two Primary Brands: Dream Water (sold in the U.S./Canada/the Middle East), and LivRelief (sold in Canada)
Available at 30k+ outlets in the U.S., and Canada, including major retailers and pharmacy chains. DHB’s annual revenue per store is approximately $350, which we believe is on the higher end of small health and wellness companies; larger brands generate $1k+
Historically, quarterly revenue has been volatile, as shown in the table below, due to the timing of orders from large customers. For example, Q1-FY2023 revenue was down 19% YoY, but the full year ended with 20% growth.
Q1-FY2025 revenue was down 14% YoY, coming in 22% below our estimate. Management is confident they will be able to report YoY revenue growth for the full year
Gross margins were down 3 pp, missing our estimate by 2 pp, due to lower revenue. Marketing expenses were up 10 pp YoY to 21% of revenue, compared to the 10%-20% range for industry peers (Source: S&P Capital IQ)
SG&A expenses were up 3% YoY, primarily due to higher head count. Lower revenue significantly impacted EBITDA, and as a result, both EPS and free cash flow turned negative
Debt/Capital increased due to lower retained earnings. None of the outstanding options/warrants are in-the-money
It is estimated that the global sleep aids market will grow from US$59B in 2023, to US$64B in 2024, and to US$89B by 2030, reflecting a CAGR of 6% (2023-2030)
It is estimated that the global pain management therapeutics market will grow from US$85B in 2024, to US$123B by 2034, reflecting a CAGR of 4%. Although Q1 came in lower than expected, given the recent product launches, their favorable reviews, and the volatility in the timing of orders from large customers, we are maintaining our full-year revenue forecast
We will adjust our estimates if Q2 turns out weaker as well. We are slightly lowering our FY2025 EPS estimate to account for higher marketing expenses
That said, we have raised our FY2026 revenue and EPS estimates, expecting higher marketing expenses to drive growth
Our DCF valuation remains unchanged at $0.10/share
The average sector forward EV/Revenue is down 1% since our previous report earlier this month. DHB is trading at an 87% discount (previously 90%) relative to its comparables
Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.07/share (previously $0.08/share)
We are reiterating our BUY rating, while maintaining our fair value estimate at $0.09/share (the average of our DCF and comparables valuations). The company experienced a temporary revenue dip in Q1 due to unusual timing of large orders. However, we believe DHB's strong product portfolio, recent product launches, and ongoing marketing efforts position it for future growth. Shares are trading at an 87% discount relative to the average sector EV/Revenue of 1.4x.
We believe the company is exposed to the following key risks (not exhaustive):
