Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Difco who wrote (56848)	2/6/2016 9:02:58 AM
From: Spekulatius	Respond to of 78958

Re TCS - I have been to their stores once and liked them, but prices seemed somewhat high. We did not buy much there. The high debt load and the fact that they own none of their stores (lease obligations) make this a very risky bet. The category is struggling (see BBBY) even though housing market is strong. Unless you really believe that the is retail concept is going to have legs, I think this is to risky, as retail turnaround are notoriously hard to achieve. I would bet on BBBY before I would buy TCS, but I Agree that TCS has more potential.

To: Difco who wrote (56848)	2/6/2016 9:49:28 AM
From: E_K_S	Respond to of 78958

Re: The Container Store Group, Inc. (TCS) The Graham Valuation model calculates a fair value for this company at $5.92/share. However, I think you want to adjust stated BV by the amount of Goodwill they carry on their books. It's quite large over $200mln. Once you do that the stock is not undervalued at all. This could be a value play if they had any company owned real estate that was carried on the books below market value but they have none as Spec stated. So I checked the income statement to see if Revenues were unusually low and if the company could shut down the marginal stores and focus on those that generated larger revenues. Revenues were actually pretty stable and not falling. So the future profitability is all about growing revenues and bringing that to the bottom line. Typically in a value proposition turnaround, management can downsize and trim the assets, cut costs and debt and then focus on growing revenues. I just do not think there are enough areas to cut (SG&A is not unusually large) and growing revenues from the current level will be difficult especially with the high debt load. There are far better investments that are profitable w/ little to no debt and are building out both company owned stores and franchise stores that may/could double in price. You could look at LOCO in the restaurant area. FWIW, my most successful retail Buys have been older more well established companies that had company owned real estate bought well below market. The hidden value was in their real estate not their retail operation (ie. Albertsons, Sears). Good luck and good investing EKS

To: Difco who wrote (56848)	2/6/2016 10:54:18 AM
From: bruwin	Read Replies (1) \| Respond to of 78958

TCS ... Yes, ... Well ... Here's their last 5 Quarterlies ... .... apart from the fact that stores generally have very small Margins, which makes them vulnerable to any "changes in circumstances", the financial fact(s) of the matter is that TCS's SG&A has risen despite the fact that their Quarterly Revenue has remained much the same. Therefore, after deducting their Compulsory expenses of CoS and SG&A, they only have ~5% of their Revenue left over at EBITDA, e.g. 10.6/197.2 =~5.4%. As Spekulatius mentioned their debt level is relatively high, so one sees that Debt Expense, i.e. Interest Expense, is EATING UP about 40% of their Revenue left over at EBITDA, i.e. 4.2/10.6=~40%. Then there's still Tax to pay, so TCS ends up with a Negative Bottom line. That's happened twice in the last 9 months. So to adequately reverse that rather poor financial performance (which, after all, is what investors are primarily interested in in terms of a "return on their investment") it seems that TCS will need to jack up their top line Revenue by a fairly appreciable amount, without adding too much to SG&A for example, before they can show a reasonable and respectable ratio of Bottom lIne/ Top Line Revenue. In the past one has seen 6.2/190.9= +3.2%, 13/224.3= +5.8%, -5.2/169.8= -3%, 2.7/195.5= +1.4%, -1.7/197,2= - 0.9% Are those attractive Net Profit margins ? Proof of the Pudding :- E_K_S mentions the "Graham Number" calculation ... well let's remember what is contained in the formula and derivation of that Number :- Included in the formula are two fractions, namely "Net Income/Shares Outstanding", another way of saying EPS, and "Shareholder's Equity/Shares Outstanding". If there is no change in "Shareholder's Equity" due to no new shares issued and "Shares Outstanding" stays much the same, then the latter ratio doesn't affect matters much. And any mathematical formula can only provide an answer based on the input data. What the formula doesn't tell you about, for example, is how much of a company's Revenue is left over after all expenses are deducted. And that Bottom Line number gets algebraically added, after any dividend payment, to a far more important number on the Balance Sheet than "Shareholder's Equity", namely "Retained Income". My guess is that there are far better margins out there, coupled with better financial performances ...