Clayton is not a Buffet stock
First off, long-term ROE 17%? The last time it cleared 17% was back in
1990, and it was heavily leveraged. Its return on assets has been steadily in the 10% range, and its return on capital over the last 5 years (which have been "boom" years, if you call it that) is about 14%. The net income tells most of the story. There's a minimal amortization/depreciation charge, making net income a good to generous estimate of cash flow rather than a drastic underestimation.
Moreover, its numbers simply reflect the industry. Its 5 year average ROC is about the industry average, and its ROA suffers the same average fate. ROE is below average if you adjust for debt. The rest of its numbers range but are overall unremarkable except for very good margins.
I can see why CMH doesn't trade at 25 times earnings, and never will on any consistent basis. That's not to say it's not undervalued. It will be around in 10 years. Is there a super-duper competitive advantage? Not really. It is reflected in the efficiency numbers, but you get a hint of one in the profit margins. But it trades at a PE not seen consistently since the last real estate slump 89-91, and if a slump is not seen, the stock will simply have to move forward. I see a great margin of safety in an undervalued stock, good for 12-15% annually long-term, maybe 20% from rock-bottom lows with good management.
Personally, I see a lot better numbers, potential in Champion, but I'm very biased there.
Mike |
