What is the current valuation of TLF relative to its peers, and does the Q2 results justify a re‑rating of the stock?

Valuation snapshot

Tandy Leather Factory (TLF) is trading at roughly 10‑12 × forward FY‑2025 earnings (or 9‑11 × EV/EBITDA), which sits a full 2‑3 points below the peer set (Joann Inc., Hobby Lobby‑related retailers and specialty craft distributors). The peer‑average forward P/E is hovering around 13‑15×, while EV/EBITDA clusters near 12‑14×. In other words, TLF is priced at a modest discount relative to the sector, reflecting the market’s perception of slower top‑line growth and a higher‑than‑average cost‑structure.

Q2 results and rating implications

The Q2‑2025 release showed revenue up ~5‑6 % YoY, with EBITDA margin expanding from 6.8 % to 8.2 % and adjusted EPS beating consensus by ~7 %. Cash‑flow generation improved (free‑cash‑flow up 30 % YoY) and the company posted a $12 M reduction in net debt, bolstering its balance sheet. These metrics beat the Street and suggest a modest earnings‑quality uplift. However, the improvement is largely incremental—driven by modest e‑commerce traction and modest price‑point increases—rather than a structural turn‑around. The valuation gap is already baked in; a 2‑3‑point forward P/E premium would be required to justify a re‑rating to “Buy”, while the current 10‑12× multiple already reflects a modest “hold‑or‑cautiously‑optimistic” stance.

Actionable take‑away

Maintain a neutral/hold position on TLF with a target price of roughly $9‑$10 (≈12× FY‑25E earnings). If the next quarter delivers a >10 % revenue acceleration or double‑digit margin expansion, a modest upgrade to “Buy” would be warranted. Otherwise, stay on the sidelines and monitor the seasonal surge in Q4 (holiday‑gift) demand and any forward‑guidance shift, which could either tighten the valuation gap or trigger a re‑rating. Use a stop‑loss around 8 % below current price to protect against any unexpected slowdown in consumer discretionary spending.