Geoff Gannon March 14, 2019

PRAP Japan (2449): Japan’s Healthiest Public Relations Firm – Trading At Just 4 Times EBIT

This article originally appeared on Kenkyo Investing, a value-driven service specializing in Japanese small and microcap stocks. Each month, Geoff will pick his favorite article from Kenkyo Investing and share it with you here at Focused Compounding. To read all of Kenkyo Investing’s articles, visit Kenkyo Investing’s website and become a member. Don’t forget to use discount code “FCPODCAST” to get 10% off.

 

Write-up By Kenkyo Investing

Thinking Points

  • PRAP Japan (TSE: 2449) is Japan’s fourth largest public relations consulting firm offering marketing communications, corporate branding, crisis communications, event management, and content production services to corporate customers in a variety of industries.
  • Compared to its competitors, PRAP has the healthiest balance sheet and has delivered business performance at a consistently elevated level.
  • Over the last decade, the company built its China business, which now accounts for nearly a third of consolidated 2018 revenues. Meanwhile, its Japan business has remained mostly stable, with modest growth. PRAP plans to expand in the Asia Pacific region going forward.
  • Despite its consistently strong business performance and industry-leading balance sheet health, PRAP trades at an adjusted 4.3 EV/EBIT, considerably lower than its peers, which trade between 9.7x and 25x.
  • Though there is no clear catalyst in sight, if investor sentiment shifts and PRAP trades at comparable multiples, investors can expect a three year investment CAGR of 21% with minimal business risk investing at today’s 1,599 yen per share price.

Introduction

PRAP Japan (TSE: 2449) is a public relations (PR) consulting firm offering marketing communications, corporate branding, crisis communications, event management, and content production services to corporate customers in a variety of industries. Founded in 1970, the company is among the older and established PR firms in Japan. Over the past decade, PRAP has increased its efforts in China, mainly targeting Japanese companies wanting to establish a presence in China.

Source: Company filings

 

Though PRAP offers a variety of services, it is a single segment company. As of 2018, PRAP is the 4th largest PR firm in the country by revenues.

 

The business & environment

The Public Relations Society of Japan (PRSJ) estimates that the PR industry size in Japan was 101.6 billion yen ($90 million USD) in 2016 (Japanese). Long term historical data isn’t available for the industry as it is still small. That said, PRSJ notes that the industry is rapidly growing:

Source: Public Relations Society of Japan

 

Over the last 8 years, the Japanese PR industry has grown at a 4% CAGR. In the last couple years, newswire services and video production and promotion services have fared particularly strong. The key players in the PR industry are:

Source: Company websites

 

Vector (TSE: 6058), Sunny Side Up (TSE: 2180), PRAP Japan, and Kyodo PR (TSE: 2436) are publicly traded. Dentsu Public Relations is under Dentsu (TSE: 4324), Japan’s largest advertising agency, and Ozma is affiliated with Hakuhodo (TSE: 2433), Japan’s second largest advertising agency.

Although Japan’s PR industry has been growing quickly, PRAP’s revenue growth pales …

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Geoff Gannon March 4, 2019

Universal Robina: A Good, Growing Filipino Branded Food and Drink Business – That’s Not Quite Cheap Enough for Value Investors

Write-up by Jayden Preston

 

Overview

Founded by John Gokongwei Jr., Universal Robina Corp. (URC) has come a long way since its humble inception as a corn starch manufacturer in 1954. Through decades of diversification, URC is now a leading producer of branded snacks and beverages in the Philippines. To a certain extent, URC is like a mixture of Pepsi Co. and Mondelez in Southeast Asia. While URC does not have a cola product, the Company, similar to Pepsi Co., does have a diverse portfolio of snacks, including potato chips and cheese rings, and beverages, such as bottled water and other ready-to-drink (RTD) beverages. URC also competes with Mondelez in the confectionery business through its products of cookies and chocolates.

In addition to its home market, URC also has presence in 12 other countries in Southeast Asia and Oceania. Its major international markets include Vietnam, Thailand, Indonesia, Australia and New Zealand.

 

However, URC is more than just a branded food producer. In the Philippines, URC has two other segments, Argo-Industrial Group and Commodity Foods Group. The former is engaged in hog and poultry farming, while the latter involves flour and sugar milling. This part of the business is similar to Seaboard Corporation.

 

URC is thus divided into 4 segments: 1) Branded Consumer Food Philippines (CF Philippines), 2) Branded Consumer Food International (CF International), 3) Argo-Industrial Group (AIG), and 4) Commodity Foods Group (CFG). (3 and 4 are collectively known as the Non-Branded consumer food segment. We will refer it as the Non-Branded segment, even though there are still some branded offerings within this segment.)

 

Segment Breakdown

CF Philippines is the most important segment for URC. It contributed 48% of revenue and 53% of EBIT in 2017. It is followed by CF International in terms of revenue contribution at 34%. Yet, the international segment actually has the lowest margins among all the segments. As such, only 19% of EBIT comes from this segment. In other words, while the Non-Branded segment only generated 18% of total revenue, it was responsible for 28% of EBIT.

 

In summary, in terms of operating profits, URC is roughly 3 quarters a branded consumer food company spanning in Southeast Asia and a quarter of a commodity foods producer in the Philippines.

 

 

Durability and Quality

 

Branded Consumer Food Segment

Branded snacks and beverages, with brand heritage, tend to score very highly on the scale of durability. The keys to the business are brand recognition and shelf-space availability. The more well-known your brands are, the more willing retailers are to stock your products; and, the more available your products are, the more frequent customers will come across your products. There is thus a reinforcing element in the equation that favors incumbent players.

This is not to say that there is no threat from new entrants. A major concern to the durability of well-established players in this space is the ongoing change in customer behavior, such as the trend toward healthy foods, …

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Geoff Gannon February 25, 2019

BWX Technologies (BWXT): A Leveraged, Speculative, and Expensive Growth Stock that Might be Worth It

BWX Technologies (BWXT) has been at the top of my research pipeline for a while now. I wrote about the company – when it was the combined company that is now split into BWXT and Babcock & Wilcox Enterprises (BW) – a few years back. You can read my report on the combined Babcock & Wilcox in the Singular Diligence archives. Today, I’m not going to talk about the business – which is described in great detail in that report (see the “Stocks A-Z” tab). Instead, I’m going to talk about price.

I’ve talked before about how I need to check off 4 points about a stock. One: do I understand it? Two: is it safe? Three: is it good? And four: is it cheap? If a stock clearly and definitively fails any of these 4 criteria – it’s not something I’m going to want to buy. Since I wrote a report on Babcock a few years back – and since BWXT is the part of the old, combined Babcock I felt I understood best – I definitely think BWXT is something I can understand. I also think it’s a high enough quality business. The big concern with safety is debt. The company does not have an investment grade credit rating. However, the business itself is very safe and very predictable. So, analyzing the debt load is really just a matter of arithmetic. You can judge that part as well as I can. The more interesting question is price. On the surface, BWXT does not look cheap. It has almost never looked cheap. And so: the quickest way to disqualify this stock would be to show that it is, in fact, too expensive to consider at $53 a share.

BWXT had a missile tube issue last year. The stock price declined. And it hit a low around the start of this year. The stock has since rebounded though. We can look at the year-to-date return in the stock as an indicator of how much more expensive it’s gotten. The stock started 2019 around $39 a share. As I write this, BWXT is at $53 a share. So, it’s 36% more expensive. Obviously, the market as a whole has done well in January and February. But, it hasn’t done anywhere near as well as that. So, we’re talking about a substantial rebound in the stock price here. I had put BWXT on my research pipeline before that rebound. So, the question is: at $53 a share, is BWXT too expensive for a value investor to even consider?

The company has debt. And, normally, I’d start with an enterprise value based price metric (like EV/EBITDA or Enterprise Value / Free Cash Flow). However, I’m trying to eliminate BWXT from consideration here. I strongly believe the business is a good, safe (when debt is kept manageable), predictable business. It might be worth a very high multiple of EBITDA, free cash flow, etc. So, starting with something like EV/EBITDA might give us an inconclusive …

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Geoff Gannon January 26, 2019

Resideo Technologies (REZI): A Somewhat Cheap, But Also Somewhat Unsafe Spin-off from Honeywell

This is a revisit of Resideo Technologies (REZI). My initial write-up of Resideo was done before the stock was spun off from Honeywell. Three things have changed since that initial interest post.

One: Honeywell spun-off Resideo. So, we now have a price on Resideo.

Two: I’ve created a five part scoring system – a checklist of sorts – for the stocks I write up here at Focused Compounding. This helps me more systematically order what stocks I should be writing up for the first time, re-visiting, etc. and what stock ideas I should make less of a priority. I’ll score Resideo using this 5-point checklist later in this article.

Three: Resideo released its first quarterly earnings as a public company. Management hosted an earnings call where they took analyst questions. They put out some earnings slides with that call as well. So, we have a bit of an update since last time.

I can tell you now that this third event is the least interesting. It’s the one I’ll spend the least time talking about. What matters most here is that we now have a price on Resideo stock and I can now score Resideo on my 5-point checklist. Let’s start with the checklist.

The 5 questions I’ll be asking are:

1)      Is Resideo stock overlooked?

2)      Do I understand the business?

3)      Is this a safe stock?

4)      Is this a good business?

5)      Is this a cheap stock?

I score each question on a scale that goes: -1 (“no), 0 (“maybe”), +1 (“yes”).

Is Resideo stock overlooked? – Maybe (0). The answer can’t be a straight “no”, because this is a spin-off. Spin-offs, in general, lead to stocks being overlooked – at least at first – because shareholders of the bigger company (in this case, the very big company Honeywell) get shares in this much smaller company without doing anything. They may sell the stock without giving it a lot of thought. Also, this spin-off didn’t seem to be a huge focus for value investors and what I did read online from value investors often treated it as something of a throwaway by Honeywell. Basically, not a lot of people are writing about how this is a high quality business. They are writing about how this company is slow growing, fully mature, and includes the burden of paying Honeywell indefinitely to cover environmental liabilities. So, this isn’t a particularly focused on spin-off. But, it’s still a stock with a market cap over $2 billion. It’s listed on a major exchange. It did an earnings call with analysts. I didn’t hear questions from analysts at especially big firms. This is probably a pretty overlooked stock for a $2 billion to $3 billion market cap. But, in the world of the kind of stocks I often look at – it wouldn’t count as overlooked at all. I’ll split the difference and say Resideo “maybe” overlooked (0 points).

Do I understand the business? – Yes (+1). I owned a stock – …

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Geoff Gannon January 18, 2019

Vertu Motors: A Cheap and Safe U.K. Car Dealer

Vertu Motors owns more than a hundred car dealerships in the United Kingdom. About half of the time – so, at 50+ locations – Vertu Motors also owns the land on which the dealership is built. They lease the other half of their locations. The stock trades on the London Stock Exchange (the AIM market, specifically) under the ticker “VTU”.

Back on November 14th, 2017 Focused Compounding member Kevin Wilde sort of wrote up Vertu Motors. He did an idea exchange post on U.K. car dealers. The stock he focused most on was Vertu Motors.

Why?

Why focus on Vertu Motors specifically?

And why focus on U.K. car dealers generally?

Publicly traded U.K. car dealers seem to trade at lower prices than their U.S. peers. In the U.S., car dealerships are usually sold at a premium to tangible book value. Car dealer stocks tend to trade at a premium to tangible book value. In the U.K., some publicly traded car dealers – like Vertu Motors – have shares that can be bought below tangible book value.

We can try to come up with arguments for why U.S. car dealers should be more expensive than U.K. car dealers. But, the math isn’t very convincing. For example, if we look at the rate of growth in Vertu Motors’ tangible net assets per share over the last 5 years – it isn’t lower than what U.S. car dealers would be able to achieve. At times, Vertu Motors stock has grown net tangible assets per share by 10% or more a year while also paying a dividend. The company was not very successful growing PER SHARE asset values in the years immediately after its founding (though it did increase the size of the company and improve its economics during this time). Since scaling up, the company seems capable of getting a 10% growth rate in net tangible assets without using leverage. Car dealers often use some leverage. And – as I said earlier – Vertu Motors stock can sometimes be bought below its tangible net assets. The company’s management includes their own 10-year calculation of free cash flow generated versus assets employed and comes up with a number around 10% a year. If I take the most recent half of the company’s existence and use the rate of compounding in net assets per share (instead of FCF like the company uses) I’d get a similar rate of value creation. Basically, I’m going to assume here that Vertu Motors can generate about 10% worth of “owner earnings” relative to its net tangible assets.

We can use that information to answer the question: “Is it cheap?”

When first looking at a stock, I often ask 5 questions: 1) Is this stock overlooked? 2) Can I understand this business? 3) Is the business safe? 4) Is the business good? 5) Is the stock cheap?

Because I started today’s discussion with the company’s ability to generate earnings relative to tangible equity – let’s start …

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Geoff Gannon January 7, 2019

Green Brick Partners (GRBK): A Cheap, Complicated Homebuilder Focused on Dallas and Atlanta

I chose to write-up Green Brick Partners (GRBK) this week for a couple reasons. The first is the company’s headquarters: Plano, Texas. I live in Plano. And the company gets about half of its value from its Dallas-Fort Worth homebuilding operations. My “initial interest post” checklist goes something like this:

  • Do I understand the business?
  • Is it safe?
  • Is it good?
  • Is it cheap?

The single most important questions is number zero: “Do I understand the business?” Since I’ve lived for about seven years right by this company’s lots – I should understand it better than most homebuilders. The other half of the company, however, is in the Atlanta area. That is a place I know nothing about. So, the answer to question zero would be that I understand half the business here well.

The next easiest question to answer – after “do I understand the business?” – would be #3 “is it cheap?”.

So, we’ll skip right to that one. It is, after all, the other reason that put Green Brick Partners at the top of my research pipeline.

I have in front of me the balance sheet for Green Brick Partners dated September 30th, 2018. This is the last day of the most recent quarter the company has provided results for. Under “inventory” we see $648 million. Under “cash” we have $33 million. There’s another $12 million under “restricted cash”. The unrestricted part of cash is offset almost exactly with customer deposits. The restricted part of cash is just $12 million. Debt is about $200 million gross. So, that leaves about $188 million in net debt. If we netted out that inventory less that net debt we’d be left with $648 million in inventory less $188 million in net debt equals $460 million. The company has a little less than 51 million shares outstanding. So, $460 million in real estate free from debt divided by 51 million shares outstanding equals $9.02 a share. Let’s call that $9 a share. That’s very close to the company’s officially stated net tangible book value of $8.97 a share. Again, that’s basically $9 a share. We can compare this to the market price of $8.06 a share at which GRBK stock closed today. So, we have a stock with tangible book value – almost all land (about 50% in Dallas Fort-Worth and about 50% in the Atlanta area) – of $9 a share against a market price of $8 a share. Green Brick Partners is trading at about 90% of book value. So, a price-to-tangible-book ratio of 0.9 looks cheap.

However, this is where we start getting into the more complex aspects of Green Brick Partners. The company’s balance sheet shows only $15 million (about 29 cents a share) in “noncontrolling” interests. Green Brick, however, has only a 50% economic interest in its Dallas Fort-Worth and Atlanta homebuilders. The fair market value of the 50% owned by its partners – basically, the top management of these “controlled builders” – would …

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Geoff Gannon January 5, 2019

Inseego (INSG): A Uniquely Positioned 5g Company

Write-Up by Long-Short Value

  • With ZTE and Huawei recently shut out of the US and Canadian Market and likely most European Markets, Inseego is uniquely positioned to take advantage and gain market share in mobile connectivity at a crucial time in the 5g cycle. This Chinese OEM ban has pushed several customers to recently sign design and development deals with Inseego.
  • Inseego’s new management has a depth of experience in telecommunications equipment and has positioned the company for both the 5g Hardware cycle and to expand its Telematics Business (CTrack) into new markets
  • Inseego’s customer relationships with Verizon and close ties with Qualcomm make it the premier connectivity partner in the US and Canada.
  • Inseego has recently signed all Tier 1 Carriers in the US and several other carriers in the US, Canada, Australia, and Europe for either their 4G LTE, Gigabit 4G LTE, or 5G products. Several of these recent contract wins have yet to begin producing any material revenues and are expected to ramp up in 2019 significantly.
  • Inseego’s Enterprise SaaS business (DMS and CTrack) operate in an extremely attractive high margin segment. Recent wins for CTrack in the Aviation space will help propel the segment to high teens to low twenties revenue growth over the next few years.
  • My base case valuation of Inseego is $7.80 a share, Upside Case could be well above $10 a share if Verizon 5g Fixed Wireless is a success.

Inseego Summary

Inseego is a Telecommunications Equipment and Enterprise SaaS design and development company with products focused on the Internet of Things (IoT) and Mobile Solutions.  Inseego is one of the few US based companies that makes Mobile Connectivity products like 4G Hotspots that traditionally compete with Chinese companies like ZTE and Huawei.  Inseego is closely aligned with Qualcomm and Verizon highlighted by the new design center they opened across the street from Qualcomm and the recent showcasing of the Verizon 5g NR utilizing the Qualcomm Snapdragon chipset.  Inseego has undergone several recent management changes and a restructuring which started with the hiring of Dan Mondor as the new CEO in June of 2017.  Dan has a very solid background in the Telecommunications Equipment space with experience as CEO of SpectraLink and as CEO of Concurrent Computer Corporation (CCUR).  Dan has assembled a stellar team to position Inseego for the coming 5g Telecommunications Cycle.

Here is a primer on 5g (Mckinsey Link) as it is a key component of the thesis around Inseego.  5g will bring not only faster speeds to wireless but also lower latency, which is important in applications like medicine, connected cars, and many IoT applications.  I have done an extensive amount of research on 5g and I believe it is a much larger step change from both a performance standpoint and an infrastructure investment standpoint than the transition from 3g to 4g.

Inseego has two businesses, Mobile Connectivity Solutions Hardware (Mobile Solutions) and SaaS, Software, and Services (Enterprise SaaS).  Mobile Solutions is a hardware business …

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Geoff Gannon January 5, 2019

Future Bright: A Macau Restaurant Operator with Restructuring Potential

Member Write-up by André Kostolany

Future Bright is a Macau-based restaurant operator with a fascinating history of management missteps. Today, Future Bright’s main businesses are Food & Catering, Souvenirs and Property. The company is primarily owned and run by Chan Chak Mo, a local Macau legislator with deep roots in the region and connections to the casino operators. The company’s market cap is about 600MM HKD, it has 75MM of cash and about 350MM in debt. While some of my comments may seem offhand, I have been following this business for over five years.

 

Restaurant Business

In Macau, Future Bright runs an easy, toll-road like business built on cash flows from in-casino restaurants, university canteens and other near captive customers. During the good times in 2011, high-rollers easily spent >$200 for a quick meal in between gambling and the core business threw off >30% EBITDA margins. Then Xi Jinping came into power and the anti-corruption campaign happened in 2012. Less high-rollers frequented Macau, instead, they were replaced by tourists with more moderate budgets. In response, Macau attempted to transform itself to a more ‘family-friendly’ destination. While Macau visitor numbers have been consistently growing at a rate of ~7% per annum for the past 10 years, average meal spend per visitor has dropped below $100 due to the shift away from high-rollers, impacting restaurant margins.

When the anti-corruption campaign was announced, management began investing into opening up restaurants in competitive restaurant markets overseas. They have recently admitted failure in Mainland China and are closing down some of these restaurants. They are doing fine in Hong Kong and the judgement is still out whether their Taiwanese restaurants will perform. None of these new restaurants will, however, approach the economics of their existing core business in Macau.

The core restaurant business in Macau is mainly a good business because casinos need higher-end restaurants to accommodate their customers but have shown little willingness to fully manage and operate these themselves. With its experience in managing a wide range of Japanese, Chinese and Western Restaurant concepts Future Bright is a useful partner to the casino operators. Casino visitors are also relatively less price sensitive than your typical restaurant customers, which has led to Future Bright’s unusually high margins on its core business.

Future Bright currently runs 61 restaurants, 4 of which are food court counters. 16 of these restaurants have been opened in the past two years and they are currently planning on opening another 20 restaurants by the end of 2019. As restaurants take about 2 years to reach maturity, and as they are currently spending to shut down overseas restaurants, the restaurant divisions’ economics are currently somewhat obscured. Adjust for one-off charges and annualizing current numbers, one can see that the restaurant division has about 970MM in revenues and is producing an 8% cash margin. Macau restaurants have a cash margin of 14%, Hong Kong 6% and China -22%. While the division currently produces 80MM of cash flow, getting China …

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Geoff Gannon January 5, 2019

Sonics & Materials (SIMA): A Profitable Net-Net Building A Cash Pile

MEMBER WRITE-UP BY LUKE ELLIOTT

Quote: $8.00   

Shares Outstanding: 3.4 million  

Market Cap: $27.2 million

Sonics and Materials Inc. (SIMA) is an American company that was founded in the late 1960’s based on the discovery and invention of ultrasonic welding by its CEO, Robert Soloff.  Mr. Soloff patented the technique, and several years later, opened Sonics and Materials.  Now, fifty years later, the company has grown from 1 employee to 70 and is still operating in the ultrasonic space.  The company stopped reporting to the SEC in 2002 due to the financial burden and is now dark, but financials from the years 1996-2002 are still publicly available.  Ownership is closely held with Mr. Soloff owning around 70% of the company and thus, the float is small.

The company mainly sells two types of products to two markets.  The first is ultrasonic liquid processors (typically referred to as Sonicators).  Sonicators are primarily sold to research institutions, hospitals, laboratories, and pharmaceutical companies, where they are used in a variety of processing applications.  Some of these include: reducing the size of particles in a liquid, soil testing, production of biofuels, cell lysis, and much more recently, for nanoparticle dispersion and cannabis extraction (for edibles).  The subsidiary that sells the Sonicator product line is called Qsonica.

The second product line is ultrasonic welding machines, which use sound waves to quickly weld components together.  Ultrasonic welding is used in more applications than can be listed.  The technology is typically used with plastics but can be used to weld metal as well (more common with electronics).  Think the wires in your phone, the cap on the back of your sharpie, car headlights, etc. You can also throw ultrasonic sealing machines in with this category.  The sealing machines are an area the company has been spending more time and focus on lately.

My best guess is that the company’s revenues are split about 50/50.  It could be 60/40 or whatever, but there is some evidence that leads me to believe it’s in that range. The main point to take away is that the company appears to be the largest player in the Sonicator business by a substantial margin, even with only $11M or so per year in sales. Back in 2009, the company acquired the “Ultrasonic Laboratory Products” division from Misonix (MSON) for $3.5M and the Vice President of SIMA (and CEO’s daughter) stated on the record that “acquiring our largest competitor has given us much greater market share.” Furthermore, before this acquisition, the 2002 10-K states, “In the ultrasonic liquid processor market, the Company’s principal competitors are Branson and Misonix Inc.  Management believes that Sonics has the largest share of this market.” Competitors in this space appear to all be small and private. This is a key element in understanding the company’s durability.

The ultrasonic welding business faces competition from much, much larger players. Emerson (EMR) is just one example.  Mr. Soloff is a true inventor, and between himself and SIMA, holds something to the …

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Geoff Gannon November 2, 2018

Argan (AGX): A Cheap, Cyclical Construction Company With a Ton of Cash and No Debt

MEMBER WRITE-UP BY JACOB McDONOUGH

Argan is a holding company that owns a few different businesses, but the most important by far is Gemma Power Systems (GPS). GPS is an engineering, procurement, and construction contractor and consultant. The company mostly provides services related to the construction of natural gas power plants, but also has worked on wind and solar projects in recent years. Argan acquired GPS in December 2006 for $33 million, and since then it has produced over $607 million in cumulative EBITDA. Argan has a ton of cash with no debt, and is selling at a very cheap price based on historical earnings. Also, the company doesn’t require any capital to operate. However, there is a lag time in between projects, which will lead to poor results over the next few quarters.

Invested Capital

In most cases, Argan can operate with negative invested capital. When projects are in process, the business is funded through accounts payable and deferred revenue. In the most recent 10-K from January 2018, the company had total assets of $603.4 million, and cash of $434 million. As long as the company has new business coming in, this cash is not needed for operations. Accounts payable was $100.2 million, and deferred revenue was $108.4 million. If we subtract these items from total assets, this comes to a negative figure of -$39.2 million. If you include the accrued expenses and long term deferred taxes, the invested capital figure becomes even more negative. This is important because the profits Argan generates becomes cash for owners, even when the business is growing rapidly. In 2007, Argan had cash of $27.7 million with $6.7 million in debt. Since then, the company has produced net income of $303.4 million. If you add up the cumulative net income, the 2018 accounts payable and deferred revenue, then subtract the cumulative dividends paid and reduction of debt, this gets us within $18.9 million of the actual ending cash balance in 2018, which is pretty close. The remainder can mostly be explained by acquisitions over the years.

In most businesses, owners must invest money in order to grow. Argan’s cash was able to build up on the balance sheet even during a period of rapid growth. Sales in 2008 were $206.8 million compared to $892.8 million in 2018, which is a compound annual growth rate of 15.8%. The company had a net loss of $3.2 million in 2008, compared to net income of $72 million in 2018. The accumulation of cash during a period of such growth is proof of the low capital requirements of the business.

High Uncertainty and Volatility Ahead

With so much cash on the balance sheet and zero debt, the risk of the business failing is very low. However, the company’s near-term future is uncertain. GPS finished some large projects this year, and will have a lag time before new projects begin in 2019. This lag time will cause the company to have a few rough quarters coming up. The …

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