Jurgis, I am not trying to "argue" or suggest you buy the stock if you do not want to -- I am just interested in engaging in an intellectual discussion of financial statements and value is often hidden. Seth Klarman says " persistence is necessary, however, since value is often well hidden"... if all it took was to screen for a low P/E multiple on MSN, that would be too easy, wouldn't it?
Few observations:
1. You note in your comment that "sales have barely grown in the last five years" .
Response: I couldn't agree with you more, but perhaps I was not clear earlier, the company over the last five years has got out of two whole businesses that they operated historically, the first being wholesale operations (in 2008) and the medical devices operations (last year). Both of these five years back accounted for over half of sales - so sales have actually grown in the "core" consumer products business - which is why I would be interested in the company.
2. Your comment "your claim to Paul Senior that they may have better use of cash than paying higher dividend is not substantiated"
Response: As I mentioned, there are atleast four (or more) ways to deploy excess cash - 1) reinvest, 2) acquire, 3) buybacks, and 4) dividends. The company earns 50% returns on tangible capital (refer to Greenblatt's Little Book that Beats that Market to go over this, if I have not explained ROIC clearly enough in my previous posts). When a company earns 50% returns on capital they invest - while I would love to see a slightly higher dividend yield, my preference is for them to reinvest, instead of liquidating the company (which dividends are) - indeed, Mr. Buffett himself prefers not to if the owners can deploy capital well. To point you to the low capital intensity of the company, capex accounts for <2% of sales, only 15% of cash flow from operations and <20% of net income.
The company has done an excellent job maintaining high market share and high returns of equity and capital invested, so my preference is to continue doing so which translates to a higher stock price. Indeed look at the 10 year "average" market share of its core product segments:
1. Eye Wash: 58%
2. Anti-Obesity: 37%
3. Oral Breath Freshener: 69%
4. Cooling gel sheets: 55%
5. Sanitary Sheets: 38%
6. Toilet Bowl Cleaners: 74%
7. Air Fresheners: 36%
8. Body Warmers: 28%
Several of the companies products are over 40 years old (and haven't had a need to change).
3. Your comment "I hate Taleb, but he got one thing right somewhat. Financial models are brittle"
Response: Thank you, but I think you are confusing financial models that Taleb refers to which refer to exotic derivatives models, CDOs and all those acronyms that we both don't understand. Financial analysis is not to be confused with that. I would encourage you to read books like the Interpretation of Financial Statements by Graham to understand this a bit better.
I am not trying to convince you, I'd encourage you stick to your way of looking at what databases tell you. Lets just respectfully agree that we have different approaches, and I for one, sure think value is often hidden, and am happy to pay 12x for a 125 year old company earnings 50% returns on capital with 10 year average market shares that I think is going to be around for another 125 years, than I am for a company that is trading at 5x P/E with no discernible competitive edge and management that is not focused on returns on capital. If it was so simple, as looking at a PE multiple on MSN, that would be very easy. however, the true value of the operating assets of a company requires work to get to....
Good investing,
AsianValueInvestor |
