Good to read your reply Paul.
Needless to say, we have our own opinion on one or two aspects, but that's to be expected in this business !
Personally, I never like to see large intangibles. I like numbers that can be backed by "definable assets". It's sometimes the case that a company's Financial Management can hide a variety of "sins" in these Intangibles. An Intangible can also be a number based on the "value" that's given to a company's Brand. That's not very "definable" as far as I'm concerned.
But more important for me is what is contained in the Capital Employed side of the Balance Sheet and how much a company earns with that Capital. I use a ratio which I calculate from the Pretax Income figure on the Income Statement. You say 9% is a "decent number" for you. Well, it's too low for me, but that's JMO.
With regard to the long term debt, what's more important, as far as I'm concerned, is what this debt is costing the company as reflected on its Income Statement. At the moment that cost, as reflected in its last Annual Report, was over $140 million/year, which was about 10% of its Annual Bottom Line. That has increased to about 17% of its Bottom Line, according to its last Quarterly report. This, in my opinion, is why large Long Term Debt is not a good thing to have in the current financial climate in the USA, as Greenspan continues to raise interest rates. I'm sure the shareholders would prefer to have that "debt cost" paid to them in a dividend !
Yes, maybe GCI hasn't seen a P/E below 13 in recent times, but a P/E's value can be dramatically reduced by a substantial increase in its latest EPS, which corresponds to a substantial increase in Bottom Line, which corresponds to greater Turnover etc..etc.. So, in my opinion, it's "bargain time" when a company shows very much improved results in its latest financial report, such that it's P/E is now lower because the "denominator" in the equation has increased before its stock price takes off due to its improved financials.
I agree with you regarding GCI's Operating Margin at the EBIDTA level. It's showing a good percentage. However, the company isn't showing recent growth at the Net Income level. In fact, its latest Quarterly showed a fall in both Net Earnings and Turnover compared to the previous three periods. Maybe this is why the stock price has been falling off in the last 8 to 9 months.
So my summary, for what it's worth, is this ....
GCI appears to be an efficiently run company as can be seen by its good Operating Margin (at the EBIDTA level). However, it needs to CONSISTENTLY increase Turnover and reduce Long Term Debt (especially as interest rates rise). Both these aspects will lead to increased growth in its Bottom Line and improved dividends for shareholders. I believe that will make it more attractive for investors. Good growth in Turnover and Earnings tend to be reflected in rising stock price. This can be seen in the likes of OXY, HANS or JLG.
Best wishes for your investments ! |
