re: RAL I consider this a classic Buffett business.
Thanks - I looked for the proformas and missed that filing somehow. I have been analyzing every annual report for three years so I kind of knew what I was buying even without the proforma. I have been dying to own the pet food business for years, but I had no desire to own the battery business along with it. I had been chomping at the bit since they announced they were going to split up the company, and I thought I had missed it when I had not bought before the spin-off. I figured the pet food business would run up after the split because there were a lot of investors like me out there. I was wrong on that, but am delighted to be able to start a position at this price with the battery business gone. By my analysis of the last annual I figured I was paying 15 or 16 times earnings pro forma, which is fine even if its a little above that given what I think of the quality of RAL's business. That filing seems to tell me I paid even less than I thought I was paying.
I want to own a lot more than I bought and would be happy to average this one down if Mr. Market will let me.
My two cats love their Meow Mix and I think this may be the one grocery item I buy which I cannot tell you what it costs - I don't even look because it is all the cat will eat. You know I'm a cheapskate and have tried to get the cats to eat generic brands, but I ended up literally throwing them in the trash and going back to their favorites. This is called a switching cost, for you Michael Porter fans. (it doesn't matter what you feed the cat, whether its Meow Mix or some other brand, cats don't like to switch. So there is no incentive for anybody to put the product on sale. VERY different from most consumer products.) IF YOU GET A CAT, START THEM WITH THE CHEAPEST CAT FOOD YOU CAN FIND. THEN THEY'LL WANT THAT FOREVER. Cats are not real bright, but apparently cat owners like me aren't much smarter or Ralston wouldn't be earning what it earns.
For the Warren Buffett fans, here we have a repeat purchase, low priced item. A can of cat food costs 32 cents. If it goes to 35 cents tomorrow is anybody going to switch brands given that the cat will give you "mad face" (if you have a cat you know what that is) and throw up on your carpet? You will rarely see a Purina brand on sale. But a 10% price increase for Purina is 3 pennies to the consumer if they're even looking at the price. Try doing that with a box of cereal priced at $3.
[If you've never looked at Ralston, they hold a large chunk of their market cap in equity of other companies. When I say 15 times earnings, that is after backing out those equity positions at market value.]
If anybody can see a reason NOT to buy Ralston after doing some homework I would love to have my reasoning challenged before I make a big mistake. |
