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Virco Stock Surges 31% in 3 Months: What's Next for VIRC?
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Virco Mfg. Corporation (VIRC - Free Report) has seen its shares rise steadily, rallying 30.9% in the past three months, outperforming the Zacks Furniture industry’s 13.3% growth. The broader Consumer Discretionary sector rose 3.9% and the S&P 500 grew 7.1% in the same time frame.
This leading U.S. manufacturer of school furniture is reaping the benefits of its robust market position, operational excellence, strong financials, and strategic advantages in the U.S. school furniture market.
VIRC stock also outpaced companies like Bassett Furniture Industries, Incorporated (BSET - Free Report) , MillerKnoll, Inc. (MLKN - Free Report) and Hooker Furnishings Corporation (HOFT - Free Report) . BSET declined 6%, while MLKN and HOFT gained 13.8% and 0.4%, respectively, during the past three months.
VIRC Stock’s 3-Month Price Performance
Image Source: Zacks Investment Research
Factors Fueling VIRC Stock Surge
Strategic Positioning: Unlike many companies that have recently started re-shoring production due to global supply chain challenges, Virco has always kept its operations domestic. This strategic decision has positioned the company well in the current economic environment, where low-cost labor abroad is no longer a significant advantage and the reliability of extended supply chains is increasingly uncertain.
Virco’s operations are specifically tailored to handle the extreme seasonality of the school furniture market, with 60% of deliveries occurring between June and August. Virco can quickly respond to sudden demand surges by manufacturing in the United States, unlike competitors that depend on imports with lengthy lead times. This seasonality, along with the "Price/Cube Threshold" (the minimum price per cubic foot required to make shipping costs viable), creates high barriers to entry for competitors that rely on imports.
Operational Excellence: Virco’s vertically integrated business model provides complete control over its manufacturing and distribution processes. This integration enables efficient production, strict quality control, and timely delivery — key advantages in a market characterized by extreme seasonality. The company’s U.S.-based facilities are strategically positioned to effectively serve both domestic and international markets, offering flexibility and speed in meeting customer demands.
A basis of Virco’s operational strategy is its proprietary PlanSCAPE software. This project management tool assists schools in designing, planning, and executing furnishing projects from start to finish. It covers all phases — design, procurement, installation, and completion — ensuring that projects are completed efficiently and to the client’s satisfaction. Virco’s direct sales force uses this software to coordinate orders, manufacturing, and installation, which reduces errors, enhances customer satisfaction, and strengthens relationships with public institutions.
Rising Shipping Costs from China: Another critical factor for Virco is the increasing cost of container freight from China. This trend could act as a tailwind for Virco, as many of its competitors are based in China. Higher shipping costs could reduce the price competitiveness of Chinese manufacturers, potentially benefiting Virco. However, it's worth noting that the impact might be uneven, as the increase in shipping costs is more pronounced in Shanghai than in Guangdong, where most of China's school furniture manufacturers are located.
Valuation: Despite the company’s shares’ outperformance compared to its industry, VIRC’s current valuation is still considered undervalued. This might imply that the market has not yet fully recognized or priced in the company's potential growth prospects or earnings potential. With a forward 12-month price-to-earnings ratio of 0.79X, below the industry average of 97X, the stock presents a potentially attractive valuation for investors seeking exposure to the furniture industry.
Image Source: Zacks Investment Research
Higher ROE: VIRC’s trailing 12-month ROE is indicative of its growth potential. ROE for the trailing 12 months is 28.4%, much higher than the industry’s 19.8%, reflecting the company’s efficient usage of shareholders’ funds.
What May Pull Back Virco Stock?
Declining Backlogs: One of the major concerns highlighted is the shrinking backlog, which decreased 13.8% year over year from $104.6 million to $90.2 million in the first quarter of fiscal 2025. This marks the fourth consecutive quarter of declining backlogs. Since the backlog is a good predictor of future revenue, this trend suggests potential revenue challenges in the upcoming busy seasons (fiscal second and third quarters), when schools typically place large orders for furniture.
Inventory Trends: Traditionally, Virco produces large quantities of inventory during the first and second quarters of each fiscal year to prepare for the seasonally high summer shipments. However, the company’s inventory levels have been decreasing year over year, which is unusual. Normally, production would ramp up, resulting in higher inventories. This decline could suggest either improved manufacturing efficiency or an expectation of lower sales volumes in the coming quarters, adding to the company’s risk profile for the remainder of the year. In the most recent quarter, inventories declined 16.7% to $71.3 million from $85.6 million a year earlier.
Quiet Estimate Revision Trend: Over the past two months, forecasts for the current quarter and fiscal 2025 have remained unchanged at $1.00 and $1.86, respectively, depicting limited upside potential for VIRC stock.
Image Source: Zacks Investment Research
Again, the company's current stock price is lower than its 50-day simple moving average (SMA) but higher than its 200-day SMA. The stock's price being below the 50-day SMA indicates recent weakness or downward momentum in the short term. On the other hand, the stock being above the 200-day SMA indicates that it still has long-term strength. The 200-day SMA is a widely followed indicator for long-term trends, and if the price is above this average, it implies the stock is generally in an upward trend over the longer term.
This combination could indicate that the stock is undergoing short-term volatility within a broader long-term uptrend. Investors might be taking profits, or there could be temporary negative news impacting the stock, but the underlying long-term trend remains positive.
Image Source: Zacks Investment Research
How to Play VIRC Stock?
Virco's operational excellence is characterized by its vertically integrated U.S. manufacturing and distribution infrastructure, the strategic use of proprietary tools like PlanSCAPE and efficient management of seasonality. These factors enable Virco to maintain a competitive edge in the school furniture market, particularly in a post-pandemic environment where reliability and speed-to-customer are supreme.
However, the decrease in backlogs and inventories, estimated revision trend, coupled with uncertainties around shipping costs and future revenue stability, suggests caution. For new investors, it may be wise to wait for more stability in this Zacks Rank #3 (Hold) company’s operations before making a fresh investment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Virco Stock Surges 31% in 3 Months: What's Next for VIRC?
Virco Mfg. Corporation (VIRC - Free Report) has seen its shares rise steadily, rallying 30.9% in the past three months, outperforming the Zacks Furniture industry’s 13.3% growth. The broader Consumer Discretionary sector rose 3.9% and the S&P 500 grew 7.1% in the same time frame.
This leading U.S. manufacturer of school furniture is reaping the benefits of its robust market position, operational excellence, strong financials, and strategic advantages in the U.S. school furniture market.
VIRC stock also outpaced companies like Bassett Furniture Industries, Incorporated (BSET - Free Report) , MillerKnoll, Inc. (MLKN - Free Report) and Hooker Furnishings Corporation (HOFT - Free Report) . BSET declined 6%, while MLKN and HOFT gained 13.8% and 0.4%, respectively, during the past three months.
VIRC Stock’s 3-Month Price Performance
Image Source: Zacks Investment Research
Factors Fueling VIRC Stock Surge
Strategic Positioning: Unlike many companies that have recently started re-shoring production due to global supply chain challenges, Virco has always kept its operations domestic. This strategic decision has positioned the company well in the current economic environment, where low-cost labor abroad is no longer a significant advantage and the reliability of extended supply chains is increasingly uncertain.
Virco’s operations are specifically tailored to handle the extreme seasonality of the school furniture market, with 60% of deliveries occurring between June and August. Virco can quickly respond to sudden demand surges by manufacturing in the United States, unlike competitors that depend on imports with lengthy lead times. This seasonality, along with the "Price/Cube Threshold" (the minimum price per cubic foot required to make shipping costs viable), creates high barriers to entry for competitors that rely on imports.
Operational Excellence: Virco’s vertically integrated business model provides complete control over its manufacturing and distribution processes. This integration enables efficient production, strict quality control, and timely delivery — key advantages in a market characterized by extreme seasonality. The company’s U.S.-based facilities are strategically positioned to effectively serve both domestic and international markets, offering flexibility and speed in meeting customer demands.
A basis of Virco’s operational strategy is its proprietary PlanSCAPE software. This project management tool assists schools in designing, planning, and executing furnishing projects from start to finish. It covers all phases — design, procurement, installation, and completion — ensuring that projects are completed efficiently and to the client’s satisfaction. Virco’s direct sales force uses this software to coordinate orders, manufacturing, and installation, which reduces errors, enhances customer satisfaction, and strengthens relationships with public institutions.
Rising Shipping Costs from China: Another critical factor for Virco is the increasing cost of container freight from China. This trend could act as a tailwind for Virco, as many of its competitors are based in China. Higher shipping costs could reduce the price competitiveness of Chinese manufacturers, potentially benefiting Virco. However, it's worth noting that the impact might be uneven, as the increase in shipping costs is more pronounced in Shanghai than in Guangdong, where most of China's school furniture manufacturers are located.
Valuation: Despite the company’s shares’ outperformance compared to its industry, VIRC’s current valuation is still considered undervalued. This might imply that the market has not yet fully recognized or priced in the company's potential growth prospects or earnings potential. With a forward 12-month price-to-earnings ratio of 0.79X, below the industry average of 97X, the stock presents a potentially attractive valuation for investors seeking exposure to the furniture industry.
Image Source: Zacks Investment Research
Higher ROE: VIRC’s trailing 12-month ROE is indicative of its growth potential. ROE for the trailing 12 months is 28.4%, much higher than the industry’s 19.8%, reflecting the company’s efficient usage of shareholders’ funds.
What May Pull Back Virco Stock?
Declining Backlogs: One of the major concerns highlighted is the shrinking backlog, which decreased 13.8% year over year from $104.6 million to $90.2 million in the first quarter of fiscal 2025. This marks the fourth consecutive quarter of declining backlogs. Since the backlog is a good predictor of future revenue, this trend suggests potential revenue challenges in the upcoming busy seasons (fiscal second and third quarters), when schools typically place large orders for furniture.
Inventory Trends: Traditionally, Virco produces large quantities of inventory during the first and second quarters of each fiscal year to prepare for the seasonally high summer shipments. However, the company’s inventory levels have been decreasing year over year, which is unusual. Normally, production would ramp up, resulting in higher inventories. This decline could suggest either improved manufacturing efficiency or an expectation of lower sales volumes in the coming quarters, adding to the company’s risk profile for the remainder of the year. In the most recent quarter, inventories declined 16.7% to $71.3 million from $85.6 million a year earlier.
Quiet Estimate Revision Trend: Over the past two months, forecasts for the current quarter and fiscal 2025 have remained unchanged at $1.00 and $1.86, respectively, depicting limited upside potential for VIRC stock.
Image Source: Zacks Investment Research
Again, the company's current stock price is lower than its 50-day simple moving average (SMA) but higher than its 200-day SMA. The stock's price being below the 50-day SMA indicates recent weakness or downward momentum in the short term. On the other hand, the stock being above the 200-day SMA indicates that it still has long-term strength. The 200-day SMA is a widely followed indicator for long-term trends, and if the price is above this average, it implies the stock is generally in an upward trend over the longer term.
This combination could indicate that the stock is undergoing short-term volatility within a broader long-term uptrend. Investors might be taking profits, or there could be temporary negative news impacting the stock, but the underlying long-term trend remains positive.
Image Source: Zacks Investment Research
How to Play VIRC Stock?
Virco's operational excellence is characterized by its vertically integrated U.S. manufacturing and distribution infrastructure, the strategic use of proprietary tools like PlanSCAPE and efficient management of seasonality. These factors enable Virco to maintain a competitive edge in the school furniture market, particularly in a post-pandemic environment where reliability and speed-to-customer are supreme.
However, the decrease in backlogs and inventories, estimated revision trend, coupled with uncertainties around shipping costs and future revenue stability, suggests caution. For new investors, it may be wise to wait for more stability in this Zacks Rank #3 (Hold) company’s operations before making a fresh investment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.