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Bear of the Day: Haymaker Acquisition Corp (OSW).

David Borun
·3-min read

Sometimes the Bear of the Day is a company that actually has decent longer-term business prospects but is facing more immediate headwinds that make it a good candidate for selling or even shorting in the near-term.

Sometimes you’ll even see a big firm that has fairly recently enjoyed a high Zacks Rank and Style Scores but has slipped because of a series of downward earnings revisions.

This is not one of those days.

Haymaker Acquisition Corp (OSW) is the sole owner of OneSpaWorld Limited. Haymaker was a Special Purpose Acquisition Company (SPAC) – a company with little or no business operations but with an exchange listing, formed for the purpose of acquiring other businesses, and essentially “taking them public” without the requirement of performing an initial public offering.

Is that shady? Not necessarily, but investors should be aware that these companies haven’t been subjected to the same level of investor scrutiny and regulatory exposure as those that have completed a traditional IPO.

OneSpaWorld is in a difficult spot. Headquartered in the Bahamas, OSW is in the business of providing health and wellness services abord cruise ships and at destination resorts.

That’s a terrible business to be in right now.

The company had already started missing earnings and revenue estimates even before the global Covid-19 pandemic, but the most recent quarter was pretty much an unmitigated disaster. With cruise ships docked, resort rooms empty and potential customers hunkered down in their homes instead of getting a massage on vacation, OSW’s revenues in Q3 are forecast to be down 98%.

That’s not a misprint – sales are expected to fall from $145 million in the same quarter in 2019 to just less than $3 million this year.

There aren’t many businesses that are structured to endure that sort of shortfall. The fourth quarter isn’t looking a whole lot better.

You might notice that the 2021 revenue estimate is quite a bit better, but that seems to be based on the hope that one or more Covid-19 vaccines will be approved and that subsequently, people will start traveling on cruise ships again. That’s far from a foregone conclusion at this point. Plus the projected sales recovery in 2021 still leaves OSW almost 40% short of last year’s $562 million.

Recent downward revisions took the Zacks Consensus Earnings Estimate to a loss of ($0.83)/share, with that loss widening by 51 cents/share over the past 3 months. Net earnings next year – even with a big projected sales bounce that’s far from certain are still expected to be a loss of ($0.08)/share.

OSW is currently a Zacks Rank #5 (Strong Sell).

Haymaker’s share price hasn’t suffered quite as much as it’s core businesses have, possibly because some investors are willing to speculate that if we get good news on the vaccine front, the fate of this tiny company (with a market cap around $500 million) could rebound quickly.

For the average investor, that would be putting a lot of faith in a highly uncertain outcome.

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