National Research (NRCIB) trades on the Nasdaq. There are two classes of stock. Focus on the Class B shares.
Press Release (“Use of Cash”: 8/21/2013)
14A (Proposal 2: Page 22; Fairness Opinion Page 29)
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Nuclear Story With an Unexplosive End (free PDF of Grant’s Interest Rate Observer)
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Read moreI have 25% of my portfolio in Weight Watchers (WTW). My average cost is $37.68 a share.
A blog I read regularly, Punchcard Investing, took a closer look at Weight Watchers. The card remained firmly unpunched:
Read moreAt a 6% FCF/EV yield (on 2012 FCF), WTW is not particularly cheap. Further, this seems to be a stock market investment rather than a business investment. Mr. Gannon’s analysis turns on Weight Watchers P/E multiple increasing from 8 to 15. We don’t like to rely on a speculative change in investor sentiment. Instead, we like to rely on improving business results to carry the day. As the name of the blog would suggest, we are not comfortable buying a stock that we would not want to own forever. Otherwise, the risk of a “value trap” is simply too high. Here, WTW simply has no durable competitive advantages. In the turbulent weight management sector, this makes forecasting future cash flows impossible and far too risky of an investment.
A stock can be cheap in two ways:
A stock like Weight Watchers (WTW) promises a high annual return. Here is Weight Watcher’s past 11 years of free cash flow data presented as a percentage (yield) of its current market cap ($2.05 billion).
Minimum: 10.3% (2008)
Maximum: 17.4% (2011)
Median: 12.4% (2004)
Mean: 12.8%
Standard Deviation: 2.0%
Variation: 0.16
From a leveraged free cash flow perspective, if 2004 was a normal year for Weight Watchers the stock’s earning power is 12.4% of today’s price. If 2008 was a normal year, the stock’s earning power is 10.3% of today’s price. If 2011 was a normal year, the stock’s earning power is 17.4% of today’s price.
To avoid permanent impairment, a stock’s earning power should be at least 6.67%. This is because stocks often trade at 15 times earnings and 1 divided by 15 is 6.67%. So a 6.67% free cash flow yield is sufficient to support a stock price.
If a stock’s price declines while it persists in delivering 7% or more of your purchase price in free cash flow each year, it’s appropriate to consider your loss a purely “paper loss”. If your intention is to hold the stock indefinitely, you may never need to realize that loss.
Ben Graham defined safety as:
Protection against loss under all normal or reasonably likely conditions or variations.
Since a 7% free cash flow yield is an adequate protection against loss, we can substitute that number for Graham’s phrase “protection against loss”.
We can then define a stock’s safety as its:
Likelihood of delivering annual free cash flow of 7% or more of your purchase price under all normal or reasonably likely conditions or variations.
Leveraged numbers – like free cash flow yield (free cash flow/market cap) – show you annual return possibilities. They do not provide any hints about margin of safety.
Capitalization independent numbers do.
A stock like Weight Watchers does not provide a high (quantitative) margin of safety. Here is Weight Watcher’s past 11 years of EBITDA data presented as a percentage (yield) of its current enterprise value ($4.34 billion).
Minimum: 7.3% (2004)
Maximum: 13.3% (2011)
Median: 9.1% (2006)
Mean: 9.3%
Standard Deviation: 1.8%
Variation: 0.20
EBITDA is cash flow the company has available to make capital expenditures, pay interest, pay taxes, make debt repayments, and finally – only after these other things have been done – buy back stock and pay dividends to shareholders.
If 2004 was a normal year for Weight Watchers, the company’s EBITDA power is only 7.3% of today’s enterprise value. This EBITDA is what protects both the creditors and owners of the company from impairment. A 7.3% EBITDA/EV yield is low. It’s equivalent to an EV/EBITDA ratio of 13.7x. That’s unsustainable. So someone – like me – who owns Weight Watchers stocks must believe that the company’s future EBITDA will not be as low as it was 10 …
Read moreMurphy USA will trade on the NYSE under the ticker “MUSA”.
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Special Situation: The WP Stewart Rights…
Read moreAn investment operation is one which can be justified on both qualitative and quantitative grounds.An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.Thorough Analysis: The study of the facts in the light of established standards of safety and value.Safety: Protection against loss under all normal or reasonably likely conditions or variations.Satisfactory Return: Any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence.
(Security Analysis, 1940)
To have a true investment there must be present a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.
(The Intelligent Investor, 1949)
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Berendsen trades in London under the ticker “BRSN”.
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