sternalot
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Posts posted by sternalot
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I like the concept, but I don't like the price much, as others have mentioned. I am trying to figure out why SG&A is almost $50m higher today than it was in the prior peak, but sales are $100m lower. Someone mentioned some acquisitions, but they don't seem to have added much value.
As I see it: Peak revenue should be ~$850 or another $150m in sales. Historically, the company has gotten 20% incremental margins over time, but I will give them 28% due to what MIGHT be a structurally higher gross margin (I suspect it might just be mix though). So, my math gets me to $0.55 in incremental earnings, for peak earnings around $1.60. Because the company is cyclical, I would give it lower multiple of 15x (should probably go lower for PEAK, but giving them benefit for being preferred manufacturer in consolidated niche industry). We are maybe 2 years out from peak (residential cycles normally around 6-8 years), so they may generate $150m in cash on top of the $250m on the balance sheet ($7 per share). That gives me a price target of ~$31, and that is prior to discounting based on my return expectations. In short, I'm not a buyer today, unless you can tell me why peak revenues should be substantially higher, or that I am way off on my incremental.
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(Oh, also there's ROIIC, which is Return on *Incremental* Invested Capital, which is just as important, if not (potentially) more important, than ROIC. It measures how much return you're getting on *new* capital investments.)
1000000% agree. The trick to compounding is finding new ways to allocate capital. By determining the return on future incremental capital employed, you should get a better sense for where ROIC and also ROE, all else equal, should move in the future.
Residential Housing Companies
in General Discussion
Posted
Homebuilders, with the exception of NVR, are serial capital murderers.