Geoff Gannon June 1, 2011

CCA Industries – Sardar Biglari

Someone who reads the blog sent me this email:


I see you tweeted about CAW again.  What about that company attracts you?  I don’t see that it is particularly undervalued and I am trying to understand what I am missing.

Sardar Biglari bought into the company. He will now have 2 board seats.

10-year average EBIT is about $5.75 million. So, the long-term average earnings would be about 50 cents a share after tax. Cash and securities is about $1.67. The stock trades around $6. That’s maybe a little less than 10 times earnings (after breaking out the cash).

Here’s the types of business they are in.

  • Dietary Supplement: 33%
  • Skin Care: 30%
  • Oral Care: 20%
  • Nail Care: 10%

Free cash flow tends to be equal to or greater than reported earnings. Cap-ex is virtually zero.

High management pay relative to the company’s size hides how profitable the business is.

For example, David Edell and Ira Berman made $2.88 million in 2009. This is against – like we said – an average EBIT of about $5.75 million. So, we’re talking more like $8 million+ in EBIT before these two get paid. Other executives are paid more what you’d expect the top folks at this kind of public company would normally make: $300,000 to $500,000.

I checked out the company’s products at a local drugstore. Though there will always be lawsuits, I thought it was a decent space to compete in. In the past, I’d researched a couple companies with similar business models. They had better brands. But CCA Industries was much cheaper.

Given the circumstances, I felt Biglari’s activism would lead to good things.

It’s coattail investing.

Talk to Geoff about CCA Industries (CAW) and Sardar Biglari