We visit quite a few websites in the course of any given week, and without exception, all of them have at least two to three articles explaining why this stock or that stock is THE stock that investors should be buying.
At Wax Ink, we decided a very long time ago not to use interim financial information when we perform our due diligence for a company, and in every article we write, we do our best to let readers know that our information is based on fiscal year XYZ data.
A case in point is a recent article from the AOL Daily Finance site titled Under the Radar: A Possible Ten-Bagger Stock. The article and the associated video, extol the reasons why investors should own Satcon Technology Corporation (Nasdaq: SATC). Never mind that annual Net Income has been negative since 1995!
The other stock mentioned was Horizon Lines, Inc. (NYSE: HRZ). What struck as strange here was that the company was "back to profitability", yet for FY09, the company reported a Net Loss of ($1.03) per share. Did FY10 end early?
This seeming discrepancy tells us that the Wizards of Wall Street are using unaudited quarterly financial data to sell a product, while the reality is, in our opinion, the only thing these folks care about is lining their own pockets.
But as we have learned over the years, even a ship adrift can sometimes be spotted from the air, and to us, such may be the case with Horizon Lines.
Basis
Financial information presented in this report for Horizon Lines, Inc. is based on the company's most recent SEC Form 10-K filing for year ending December 20, 2009, as filed with the Security and Exchange Commission on February 4, 20101.
What They Do
The company believes that they are the nation’s leading Jones Act container shipping and integrated logistics company, accounting for about 37% of the total U.S. maritime container shipments from the continental United States to Alaska, Puerto Rico, Hawaii, as well as to Guam, the U.S. Virgin Islands, and Micronesia.
Short-Term Investment
The stock closed recently at $4.00, with Resistance at $4.11, a 3% increase from its recent close, and support at $3.65, a 9% decrease from a recent close.
With the trend line falling, Stochastic not yet reaching oversold, the MACD flat, and Daily Volume seeming to stabilize in the 300,000 share a day range, there simply doesn’t seem like much for short-term investors to get to excited about.
Long-Term (5 Year Hold) Investment
There is simply no easy way to say this, but at almost $17 per share the company has an extreme amount of debt.
What we found strange was that the company’s lenders know this. How do they know? Well with Total Debt exceeding Net Fixed Assets by more than 2.5 times, the company’s lenders charged the company an annual interest rate for FY09 of almost 8%. Something they would not have done had the company had a stronger balance sheet.
Another balance sheet related item that caught our attention was that Goodwill and Intangibles make up almost 52% of Total Assets, meaning that the company has little to offer in the way of collateral.
We also have to wonder if management is even aware of this seemingly high interest rate? We bring this up because it appears to us that management is pretty much asleep in the wheelhouse.
Why else would management allow Accounts Payables to be paid every 17 days, while allowing Accounts Receivable to be collected every 39 days, thus providing their vendors an interest free 22 day loan.
One bright spot was the company’s Free Cash Flow, which while reduced year over year, was still a respectable $3.40 for FY09.
The company also faces numerous legal challenges. This came as no surprise to us, as it simply the nature of the business. We had anticipated that most of the legal issues would be either related to price fixing, or monopolistic business practices, or would be labor related. And with the exception of one case, that is pretty much what we found.
However in April 2008 the company received a grand jury subpoena and search warrant for the Antitrust Division of the Department of Justice (DOJ) regarding antitrust violations related to the domestic ocean shipping business.
The subpoena was serious enough that the company has entered into a conditional amnesty agreement with the DOJ under its Corporate Leniency Policy. The amnesty agreement pertains to a single contract, and by signing it, the DOJ has agreed not to bring any criminal prosecution as long as the company cooperates with the government regarding this investigation.
Valuations
Based on our review of the FY09 financial information for Horizon Lines, our Reasonable Value Estimate for the stock is $20-$21, with a Buy Target of $12, a First Sell Target of $24, and a Close Target of $25-$26.
Because many of the financial metrics that we believe are important when valuing a company were simply not investment quality, we reduced our Buy Target from $12 to $6.
Final Thoughts
Over the years, the decision to take a more conservative approach when it comes to determining a reasonable value estimate for a stock, has cost us readers as well as the loss of research clients. Certainly that has been, and continues to be unfortunate for us.
But be that as it may, we believed then and we believe today, basing investment decisions on interim (quarterly) financial information is nothing more than divination, and over the course of a lifetime of saving and investing, the practice will cost the vast majority of investors dearly, especially once the government realizes they cannot buy America's way to an economic recovery.
Wax
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OpenTable, Inc. - Pants Down Dining
Stunned! Floored! Amazed! We simply don't know any other way to express how dumbfounded we are, especially since the company is one that we had never heard of.
We are not surprised that the company is one we had never heard of, certainly they have never heard of us either. What we are surprised about is that many investors seem to have forgotten the dot com bubble.
The company is OpenTable, Inc. (Nasdaq: OPEN), a company with a market cap of $1.4 billion that has seen its stock price increase a little more than 263% since the start of the year.
Incredible!
"May we seat your party?"
Basis
OpenTable, Inc. financial information contained in this report is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2009, as filed with the Securities and Exchange Commission on March 11, 2010.
What They Do
The company provides solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. The company solutions include a proprietary Electronic Reservation Book, or ERB, for restaurant customers and www.opentable.com, a popular restaurant reservation website for diners.
The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states as well as select markets outside of the United States. Since the company's inception in 1998, they claim to have seated approximately 130 million diners through OpenTable reservations.
Restaurants pay the company a one-time installation fee for onsite installation and training of their ERB software, a monthly subscription fee for the use of that software and its associated hardware, and a fee for each restaurant guest seated through online reservations. The online restaurant reservation service is free to diners.
The company became a publicly traded company in May 2009.
Short-Term Investment
The stock closed recently at $65.19, with resistance at $67.33, a 3% increase from its recent close, and first support at $50.88, a 22% decline from its recent close.
The stock price has been on a steady climb since February and continues to move higher and higher. With its recent close, the stock price is almost 10% above its 13 day moving average and almost 25% above its 50 day moving average.
Long-Term (5 Year Hold) Investment
It is hard to argue with the much of the company's FY09 financial information as the company is simply to new a public company.
Of the metrics we like to watch, the company's Current Ratio, Quick Ratio, Cash Ratio, Debt to EBITDA Ratio, and Debt to Equity Ratio, were all what we would consider investment grade.
That company has no debt, is also a strong positive.
What was not what we would consider investment grade, was the company's Operating Cash Flow Margin at 22%, the company's Free Cash Flow at $0.40, and the company's Return on Invested Capital at 18%.
Valuations
Based on our review of the company's latest annual financial information, our Reasonable Value Estimate for the stock is $19-$21 per share.
The stock is currently trading at 190 times FY09 Earnings, 161 times FY09 Free Cash Flow, and 20 times Book Value.
Market Advantage
Based on our valuation work for this stock, we believe that the Markets currently have a 334% advantage over the Investor.
Final Thoughts
We admit that we were very impressed with the company's website. Not only were we able to make reservations, we were able to view the menu of the restaurant, as well as read reviews about the restaurant from the company's website.
Additionally, the company's website allowed us to search through various neighborhoods as well as search for various types of cuisine. All very cool indeed.
But considering all of this from the perspective of an investor, we have to wonder if when the main course is served the Caneton de la Saison won't taste an awful lot like L'idiot du Jour.
Wax
Free Worksheet
To download the Wax Ink OpenTable worksheet, please click here.
We are not surprised that the company is one we had never heard of, certainly they have never heard of us either. What we are surprised about is that many investors seem to have forgotten the dot com bubble.
The company is OpenTable, Inc. (Nasdaq: OPEN), a company with a market cap of $1.4 billion that has seen its stock price increase a little more than 263% since the start of the year.
Incredible!
"May we seat your party?"
Basis
OpenTable, Inc. financial information contained in this report is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2009, as filed with the Securities and Exchange Commission on March 11, 2010.
What They Do
The company provides solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. The company solutions include a proprietary Electronic Reservation Book, or ERB, for restaurant customers and www.opentable.com, a popular restaurant reservation website for diners.
The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states as well as select markets outside of the United States. Since the company's inception in 1998, they claim to have seated approximately 130 million diners through OpenTable reservations.
Restaurants pay the company a one-time installation fee for onsite installation and training of their ERB software, a monthly subscription fee for the use of that software and its associated hardware, and a fee for each restaurant guest seated through online reservations. The online restaurant reservation service is free to diners.
The company became a publicly traded company in May 2009.
Short-Term Investment
The stock closed recently at $65.19, with resistance at $67.33, a 3% increase from its recent close, and first support at $50.88, a 22% decline from its recent close.
The stock price has been on a steady climb since February and continues to move higher and higher. With its recent close, the stock price is almost 10% above its 13 day moving average and almost 25% above its 50 day moving average.
Long-Term (5 Year Hold) Investment
It is hard to argue with the much of the company's FY09 financial information as the company is simply to new a public company.
Of the metrics we like to watch, the company's Current Ratio, Quick Ratio, Cash Ratio, Debt to EBITDA Ratio, and Debt to Equity Ratio, were all what we would consider investment grade.
That company has no debt, is also a strong positive.
What was not what we would consider investment grade, was the company's Operating Cash Flow Margin at 22%, the company's Free Cash Flow at $0.40, and the company's Return on Invested Capital at 18%.
Valuations
Based on our review of the company's latest annual financial information, our Reasonable Value Estimate for the stock is $19-$21 per share.
The stock is currently trading at 190 times FY09 Earnings, 161 times FY09 Free Cash Flow, and 20 times Book Value.
Market Advantage
Based on our valuation work for this stock, we believe that the Markets currently have a 334% advantage over the Investor.
Final Thoughts
We admit that we were very impressed with the company's website. Not only were we able to make reservations, we were able to view the menu of the restaurant, as well as read reviews about the restaurant from the company's website.
Additionally, the company's website allowed us to search through various neighborhoods as well as search for various types of cuisine. All very cool indeed.
But considering all of this from the perspective of an investor, we have to wonder if when the main course is served the Caneton de la Saison won't taste an awful lot like L'idiot du Jour.
Wax
Free Worksheet
To download the Wax Ink OpenTable worksheet, please click here.
Take-Two Interactive - Thoughts From Fifth and Dover
Because we are simple working people without three-piece suits or graduate degrees in finance, and because we also think that pre-popped freeze dried popcorn would be a poor idea, we get quite a bit of e-mail during the course of any given week asking us our thoughts on specific companies.
The overwhelming requests are from clients that read something positive about a company on an investing website. This week was no exception.
It seems that a website recommended buying game manufacturer Take-Two Interactive Software, Inc. (Nasdaq: TTWO). This recommendation prompted a number of e-mails to us all wanting to know if investments in Activision Blizzard, Inc. (Nasdaq: ATVI) or Electronic Arts, Inc. (Nasdaq: ERTS) should be sold.
Alas, we simply do not recommend the buying or selling of securities, mainly because we are not qualified to peform that sort of investment function but more importantly because that is simply not the business we engage in.
What we do suggest and have always suggested, is that before an investment is undertaken the reason for the investment is fully considered.
Several of the questions we suggest investors asked themselves before they invest are:
Basis
Financial information related to Take-Two Interactive Software, Inc. contained in this report, is based on the company's most recent SEC 10-K filing for year ending October 31, 2009, as filed with the Securities and Exchange Commission on December 18, 2009.
What They Do
The company is a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. The company’s publishing business consists of Rockstar Games, 2K Games, 2K Sports and 2K Play publishing labels.
The company develops, markets and publishes software titles for gaming and entertainment hardware platforms, including Sony’s PLAYSTATION3 (PS3) and PlayStation2 (PS2) computer entertainment systems; Sony’s PSP (PlayStationPortable) (PSP) system; Microsoft’s Xbox 360 (Xbox 360) video game and entertainment system; Nintendo’s Wii (Wii) and DS (DS) systems, and for the personal computers (PC) and Games for Windows.
The company also develops and publishes titles for digital distribution via Sony's PlayStationNetwork (PSN) and Microsoft's Xbox LIVE Marketplace (Xbox LIVE) and Xbox LIVE Arcade (XBLA), as well as digitally offers its PC titles through online download stores and services, such as Steam.
The company has also begun to develop and publish titles for the iPhone and iPod touch. In March 2010, SYNNEX Corporation acquired substantially all of the North American assets of Jack of All Games, Inc., a distributor of video game hardware and software in North America, and a wholly owned subsidiary of Take-Two Interactive Software, Inc.
Short-Term Investment
The stock closed recently at $9.57 with resistance at $9.89, a 3% increase from its recent close and support at $9.39, a 2% decline from its recent close.
The shorter term trend for the stock is down, with the Stochastic currently moving from Overbought to Oversold, telling us, at least at this time, a short-term investment is not in our best interest.
Long-Term ( 5 Year Hold) Investment
The company's current fiscal year ends next month, and while we did take a look at their last several quarters, we focused mainly on their FY09 financial data, since it is the most current audited financial information.
What we found was simply unimpressive. Goodwill and Intangibles make up more than 30% of Total Assets, which changes the company's $6.18 Book Value to $2.28 when these two items are backed out of Total Assets.
In addition, we feel the company simply has to much Debt relative to Sales and note that in such a tough economic environment, servicing their debt, may become harder to do, especially since long-term debt increased for FY09 by almost $90 million.
We were also not overly impressed with the company's FY09 Free Cash Flow of $0.08 per share. It just seems to us that with the company's published titles, Free Cash Flow should be considerably higher and caution investors to pay close attention to this metric going forward.
Valuations
Based on our review of the company's FY09 financial information, our Reasonable Value Estimate for this stock is between $12 and $15.
To many investors, the stock will appear attractive since it is currently trading at about 2 times Book Value.
However the stock is also trading at 124 times FY09 Free Cash Flow, with a Trailing Twelve Month PE of 126. Not exactly what we consider cheap.
Market Advantage
Based on our valuation work for this stock, we believe that the odds of reaching our Reasonable Value Target are currently 8 to 1 against the investor.
Final Thoughts
Investment decisions should never be made in a vacuum. All reasonable care should be given to what a particular investment is intended to do for your portfolio.
The same is true of stock recommendations. Many stock recommendations are made with the best of intentions and come from websites operated with the highest of integrity.
But make no mistake. All of them, including our own little blog site, are there to make money. Free stock recommendations offered by many sites are only enticements, intended to get the reader to click on a link or subscribe to a newsletter that automatically renews year after year.
So instead of worrying about the recommendations of a website, we think investors should spend their time worrying about the type of shoes a mosquito might wear will driving to Tipperary, since to us driving mosquitoes and website stock recommendations are are one in the same.
Wax
Worksheet
To download the free Wax Ink Take-Two worksheet, please click here.
The overwhelming requests are from clients that read something positive about a company on an investing website. This week was no exception.
It seems that a website recommended buying game manufacturer Take-Two Interactive Software, Inc. (Nasdaq: TTWO). This recommendation prompted a number of e-mails to us all wanting to know if investments in Activision Blizzard, Inc. (Nasdaq: ATVI) or Electronic Arts, Inc. (Nasdaq: ERTS) should be sold.
Alas, we simply do not recommend the buying or selling of securities, mainly because we are not qualified to peform that sort of investment function but more importantly because that is simply not the business we engage in.
What we do suggest and have always suggested, is that before an investment is undertaken the reason for the investment is fully considered.
Several of the questions we suggest investors asked themselves before they invest are:
- What is it that you expect an investment in this company to do for you?
- When will you need the money from an investment in this company?
- What is your estimate of the value of what you are buying?
- What is your capitulation point should the investment not work out?
- Does your spouse or significant think this is a good investment?
Basis
Financial information related to Take-Two Interactive Software, Inc. contained in this report, is based on the company's most recent SEC 10-K filing for year ending October 31, 2009, as filed with the Securities and Exchange Commission on December 18, 2009.
What They Do
The company is a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. The company’s publishing business consists of Rockstar Games, 2K Games, 2K Sports and 2K Play publishing labels.
The company develops, markets and publishes software titles for gaming and entertainment hardware platforms, including Sony’s PLAYSTATION3 (PS3) and PlayStation2 (PS2) computer entertainment systems; Sony’s PSP (PlayStationPortable) (PSP) system; Microsoft’s Xbox 360 (Xbox 360) video game and entertainment system; Nintendo’s Wii (Wii) and DS (DS) systems, and for the personal computers (PC) and Games for Windows.
The company also develops and publishes titles for digital distribution via Sony's PlayStationNetwork (PSN) and Microsoft's Xbox LIVE Marketplace (Xbox LIVE) and Xbox LIVE Arcade (XBLA), as well as digitally offers its PC titles through online download stores and services, such as Steam.
The company has also begun to develop and publish titles for the iPhone and iPod touch. In March 2010, SYNNEX Corporation acquired substantially all of the North American assets of Jack of All Games, Inc., a distributor of video game hardware and software in North America, and a wholly owned subsidiary of Take-Two Interactive Software, Inc.
Short-Term Investment
The stock closed recently at $9.57 with resistance at $9.89, a 3% increase from its recent close and support at $9.39, a 2% decline from its recent close.
The shorter term trend for the stock is down, with the Stochastic currently moving from Overbought to Oversold, telling us, at least at this time, a short-term investment is not in our best interest.
Long-Term ( 5 Year Hold) Investment
The company's current fiscal year ends next month, and while we did take a look at their last several quarters, we focused mainly on their FY09 financial data, since it is the most current audited financial information.
What we found was simply unimpressive. Goodwill and Intangibles make up more than 30% of Total Assets, which changes the company's $6.18 Book Value to $2.28 when these two items are backed out of Total Assets.
In addition, we feel the company simply has to much Debt relative to Sales and note that in such a tough economic environment, servicing their debt, may become harder to do, especially since long-term debt increased for FY09 by almost $90 million.
We were also not overly impressed with the company's FY09 Free Cash Flow of $0.08 per share. It just seems to us that with the company's published titles, Free Cash Flow should be considerably higher and caution investors to pay close attention to this metric going forward.
Valuations
Based on our review of the company's FY09 financial information, our Reasonable Value Estimate for this stock is between $12 and $15.
To many investors, the stock will appear attractive since it is currently trading at about 2 times Book Value.
However the stock is also trading at 124 times FY09 Free Cash Flow, with a Trailing Twelve Month PE of 126. Not exactly what we consider cheap.
Market Advantage
Based on our valuation work for this stock, we believe that the odds of reaching our Reasonable Value Target are currently 8 to 1 against the investor.
Final Thoughts
Investment decisions should never be made in a vacuum. All reasonable care should be given to what a particular investment is intended to do for your portfolio.
The same is true of stock recommendations. Many stock recommendations are made with the best of intentions and come from websites operated with the highest of integrity.
But make no mistake. All of them, including our own little blog site, are there to make money. Free stock recommendations offered by many sites are only enticements, intended to get the reader to click on a link or subscribe to a newsletter that automatically renews year after year.
So instead of worrying about the recommendations of a website, we think investors should spend their time worrying about the type of shoes a mosquito might wear will driving to Tipperary, since to us driving mosquitoes and website stock recommendations are are one in the same.
Wax
Worksheet
To download the free Wax Ink Take-Two worksheet, please click here.
Panera Bread - Thoughts From the Corner Booth
One of our investment management clients sent us an e-mail several days ago inquiring about our thoughts on Panera Bread Company (Nasdaq: PNRA).
We need to say at this point that investment in the retail sector is simply not our cup of tea. Certainly there may be great buying opportunities in that sector of the market, but we are picks and shovels investors, and as such, are simply not interested in the whims of the consumer when it comes to investment growth.
If Panera had a more captive audience, for instance like a Starbux, Inc. (Nasdaq: SBUX) we may have a different outlook. That's not to say that for us, Starbux is a company we would invest in, it isn't, but that is simply because the company, like Whole Foods Market, Inc. (Nasdaq: WFMI) and others, is a one trick pony and prospers only because of the discretionary generosity of the consumer. Thanks but no thanks.
Basis
Financial information related to Panera Bread Company, Inc. contained in this report, is based on the company's most recent SEC Form 10-K filing for year ending December 29, 2009, as filed with the Securities and Exchange Commission on February 26, 2010.
What They Do
Panera Bread Company along with its subsidiaries is a national bakery-cafe concept with 1,380 company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario, Canada, operating under the Panera Bread, Saint Louis Bread Company. and Paradise Bakery and Café trademark names.
The company operates in three business segments: company bakery-cafe operations, franchise operations, and fresh dough operations. For FY09 the company's bakery-cafe operations segment consisted of 585 company-owned bakery-cafes, all located in the United States, and its franchise operations segment consisted of 795 franchise-operated bakery-cafes, located throughout the United States and in Ontario, Canada.
Also for FY09, the company's fresh dough operations segment, which supplies fresh dough items daily to company-owned and franchise-operated bakery-cafes, consisted of 23 fresh dough facilities of which 21 were company-owned and two were franchise-operated.
Short-Term Investment
The company closed recently at $85.02, with Resistance at $88.68, a 4% increase from a recent close and Support at $77.53, a 9% decline from a recent close.
The stock price is currently trending upward, with the Stochastic recently becoming overbought. Clearly the better short-term buying opportunity was back in July.
Considering the current trend, and the tight spread between Resistance and Support, we have no short-term investment interest at this time.
Long-Term (5 Year Hold) Investment
It’s hard to ignore a company that for FY09 had Free Cash Flow of $5.30 a share, a 13% year over year increase.
Coupling Free Cash Flow with Return on Invested Capital of 45%, a 9% year over year increase, a Debt to Equity Ratio of 0.04, a Current Ratio of 2.26, a Quick Ratio of 1.93, and Cash Ratio of 1.73, it’s very easy to see why the company is #99 on the Fortune list of The 100 Fastest Growing Companies.
Management has done an outstanding job keeping the company’s debt burden low. Like many companies, Panera does have a credit line available to them, but cudos to management for ending FY09 just like they ended FY08, with no outstanding debt.
Valuations
Based on our preliminary review of the company’s FY09 annual financial information, we think a Reasonable Value Estimate for the stock based on a 5-year hold is in the $54-$56 range.
We note that the company is currently trading at 16 times Free Cash Flow, at 4.5 times Book Value, and 5.5 times Tangible Book Value, making investment in the company expensive.
Final Thoughts
Getting a great loaf a bread and nice cup of fresh soup is certainly something that has intrigued a great number of folks, especially of late with so much in the news about eating healthy.
While we would prefer a rare rib-eye steak with fries and a cold dark beer, there may be a pretty fair chance that we are in the minority here, especially as the start of our particular generation turns 65 this year.
Blue hair aside, we simply don’t find a bread store that sells soup and green tea, a compelling investment, and hope those so inclined to invest pay close attention to both the lunch menu and the financial menu, both of which are which is subject to change without notice.
Wax
Worksheet
To download the free Wax Ink Raw Value Worksheet for Panera Bread, please click here.
We need to say at this point that investment in the retail sector is simply not our cup of tea. Certainly there may be great buying opportunities in that sector of the market, but we are picks and shovels investors, and as such, are simply not interested in the whims of the consumer when it comes to investment growth.
If Panera had a more captive audience, for instance like a Starbux, Inc. (Nasdaq: SBUX) we may have a different outlook. That's not to say that for us, Starbux is a company we would invest in, it isn't, but that is simply because the company, like Whole Foods Market, Inc. (Nasdaq: WFMI) and others, is a one trick pony and prospers only because of the discretionary generosity of the consumer. Thanks but no thanks.
Basis
Financial information related to Panera Bread Company, Inc. contained in this report, is based on the company's most recent SEC Form 10-K filing for year ending December 29, 2009, as filed with the Securities and Exchange Commission on February 26, 2010.
What They Do
Panera Bread Company along with its subsidiaries is a national bakery-cafe concept with 1,380 company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario, Canada, operating under the Panera Bread, Saint Louis Bread Company. and Paradise Bakery and Café trademark names.
The company operates in three business segments: company bakery-cafe operations, franchise operations, and fresh dough operations. For FY09 the company's bakery-cafe operations segment consisted of 585 company-owned bakery-cafes, all located in the United States, and its franchise operations segment consisted of 795 franchise-operated bakery-cafes, located throughout the United States and in Ontario, Canada.
Also for FY09, the company's fresh dough operations segment, which supplies fresh dough items daily to company-owned and franchise-operated bakery-cafes, consisted of 23 fresh dough facilities of which 21 were company-owned and two were franchise-operated.
Short-Term Investment
The company closed recently at $85.02, with Resistance at $88.68, a 4% increase from a recent close and Support at $77.53, a 9% decline from a recent close.
The stock price is currently trending upward, with the Stochastic recently becoming overbought. Clearly the better short-term buying opportunity was back in July.
Considering the current trend, and the tight spread between Resistance and Support, we have no short-term investment interest at this time.
Long-Term (5 Year Hold) Investment
It’s hard to ignore a company that for FY09 had Free Cash Flow of $5.30 a share, a 13% year over year increase.
Coupling Free Cash Flow with Return on Invested Capital of 45%, a 9% year over year increase, a Debt to Equity Ratio of 0.04, a Current Ratio of 2.26, a Quick Ratio of 1.93, and Cash Ratio of 1.73, it’s very easy to see why the company is #99 on the Fortune list of The 100 Fastest Growing Companies.
Management has done an outstanding job keeping the company’s debt burden low. Like many companies, Panera does have a credit line available to them, but cudos to management for ending FY09 just like they ended FY08, with no outstanding debt.
Valuations
Based on our preliminary review of the company’s FY09 annual financial information, we think a Reasonable Value Estimate for the stock based on a 5-year hold is in the $54-$56 range.
We note that the company is currently trading at 16 times Free Cash Flow, at 4.5 times Book Value, and 5.5 times Tangible Book Value, making investment in the company expensive.
Final Thoughts
Getting a great loaf a bread and nice cup of fresh soup is certainly something that has intrigued a great number of folks, especially of late with so much in the news about eating healthy.
While we would prefer a rare rib-eye steak with fries and a cold dark beer, there may be a pretty fair chance that we are in the minority here, especially as the start of our particular generation turns 65 this year.
Blue hair aside, we simply don’t find a bread store that sells soup and green tea, a compelling investment, and hope those so inclined to invest pay close attention to both the lunch menu and the financial menu, both of which are which is subject to change without notice.
Wax
Worksheet
To download the free Wax Ink Raw Value Worksheet for Panera Bread, please click here.
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