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Blind Evaluation #2


racemize
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Here's the second one, again I don't know the answer yet.  This time my wife took out the P/E so we really don't know the price. 

 

As I mentioned before, perhaps we should describe the company a bit as well.  Let me know if you think we should or not.  If consensus says yes, we will in the future.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Space for spoilers.

Blind_Eval_2.pdf

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bleh, I guess the dividend yield gives it away.  Stop thinking about that!

 

Let's see, market cap and shares outstanding.  How do I calculate market price again?  Bad Norm  ;)

 

ha, I forgot it listed outstanding shares.  But you'd have to actually think about it to get the share price from that, so don't!

 

Edit: also, it's good to see if it is decreasing, I'm not sure we can remove either of those stats without losing a lot of information.

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Ok, here's my thoughts:

 

1) Really looks like a Buffett type stock, solid earnings growth with only one drop over 16 years (even shrugging off the 2008 crisis), high return on equity and return on total capital, decreasing share count.  All nice signs.

 

2) Low debt! no concerns there.

 

3) Low margins and lots of stores (that are still increasing), perhaps a Wal-Mart, Costco type of store?  Assuming a low cost provider of some sort.

 

4) Typically I'll ignore estimates on growth future stats unless they are lower.  In this case, they are not expected to be lower, so that's a plus (or I guess not a negative, to put it better).

 

I'm not finding too many faults in the numbers, I imagine this one isn't terribly cheap.  I'd say the upper end of my interest is around 45 dollars and I'd be increasingly interested as it gets below that.  I'd guess market price in the 45-55 range.

 

 

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4) Typically I'll ignore estimates on growth future stats unless they are lower.  In this case, they are not expected to be lower, so that's a plus (or I guess not a negative, to put it better).

 

Strikes me that one should discount the estimates to account for analyst enthusiasm.  I forget the current average rate, but by about 10%?  (They also seem to have a problem identifying big jumps.)

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4) Typically I'll ignore estimates on growth future stats unless they are lower.  In this case, they are not expected to be lower, so that's a plus (or I guess not a negative, to put it better).

 

Strikes me that one should discount the estimates to account for analyst enthusiasm.  I forget the current average rate, but by about 10%?  (They also seem to have a problem identifying big jumps.)

 

I agree, I just mean that I pay attention to them if they expect it to grow less than it has in the past.  In other words, take the worst of past growth and expected growth, to be conservative.

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To me FWIW, it looks like:

 

i a good (possibly great) company based on

-consistently profitable, with steady growth, excellent ROE (15-20%)

-Looks like they have been borrowing money to buy back shares + expand # of stores

-looks like a Peter Lynch "Stalwart" i.e a 10-15% grower

-paying a dividend

 

ii concern: -balance sheet - decreasing cash, increasing debt.  Inventory increased by 35% from 2010 while Sales increased by half that by ~ 18% (equal on a sales per share basis-both up ~ 34-35%)

 

I think without cheating that it is selling for between ~ 15 x this year or next years earning or ~ $45-60

 

Would want to pay less than this.

 

Would want to look at qualitative factors-nature and quality of business,competition, what kind of moat they have (looks like they have decent competitive feature as they are able to earn decent 18+ % ROE without much use of debt)

 

re analyst estimates- they are projecting higher + above average performance for the next 5 years as compared to past 10 years- I would cut that estimate in half if you use it at all i.e assume earnings growth of 6-7% vs 13% as an example + base your estimation on that,

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Ok, here's my thoughts:

 

1) Really looks like a Buffett type stock, solid earnings growth with only one drop over 16 years (even shrugging off the 2008 crisis), high return on equity and return on total capital, decreasing share count.  All nice signs.

 

2) Low debt! no concerns there.

 

3) Low margins and lots of stores (that are still increasing), perhaps a Wal-Mart, Costco type of store?  Assuming a low cost provider of some sort.

 

4) Typically I'll ignore estimates on growth future stats unless they are lower.  In this case, they are not expected to be lower, so that's a plus (or I guess not a negative, to put it better).

 

I'm not finding too many faults in the numbers, I imagine this one isn't terribly cheap.  I'd say the upper end of my interest is around 45 dollars and I'd be increasingly interested as it gets below that.  I'd guess market price in the 45-55 range.

 

Margins don't look low to me at 37.5% gross margin and 20% ROC. Asset turnover is 3x+ and they can safely raise more debt even if sales fall to 2008 levels at 7% operating profit. Is this a clothing retailer? The numbers look similar to GPS but with Rue 21 asset turnover.

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re margins, I was mostly looking at net margin.

 

In any event, the company was family dollar (FDO):

http://finance.yahoo.com/q?s=FDO%2C+&ql=1

 

and the price is pretty high (65).

 

I've really only been to these type of stores one or two times (I think I went to a dollar store), so I don't know too much about them.  One of the Buffett mininos bought dollar general, which I believe is similar.  In any event, price seems too high to consider at this point.

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I owned them years ago when they were an epic growth story, I sold out in 2006 or early 2007.

 

The company has seen a rebirth with the economic downturn leading to a traffic pickup.  I know in 2005/2006 they were able to grow the business by adding coolers and offering perishable products such as milk and eggs.  The issue is what happens with the economy picks up again?  Will people keep shopping at FDO?  The founder who grew the company like a weed left back in the last decade as well.  I don't know who's in charge now, but that could be a factor as well.

 

FDO has also left their roots as a pure dollar store and they're now a discount store.  So FDO has items for $3.50, similar to Dollar General.  The true dollar store like Dollar Tree is a big risk to FDO, all prices are $1 and they can easily steal market share from FDO. 

 

Most people on this board have probably never set foot in one of these stores, but it's worth going.  My wife goes to the dollar store often, so either we're poor or cheap.. What's fascinating is looking at the products and comparing, something for a dollar isn't always a deal.  Dollar Tree carries a lot of name brand items in odd sizes, so on an oz basis Tide for $1 at Dollar Tree is actually more expensive than at the local grocery store.  Within five miles of my house there are three Dollar Trees, two Family Dollars, and a Dollar General.  I live in a middle class suburb north of Pittsburgh, I'd say the market is fairly saturated at this point.

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The company has seen a rebirth with the economic downturn leading to a traffic pickup.  I know in 2005/2006 they were able to grow the business by adding coolers and offering perishable products such as milk and eggs.  The issue is what happens with the economy picks up again?  Will people keep shopping at FDO?  The founder who grew the company like a weed left back in the last decade as well.  I don't know who's in charge now, but that could be a factor as well.

 

ValueLine had similar comments to this re the downturn/pick up again.  At this point, it seems like all the good news is pretty well priced in.

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