My efforts started with a theory that in some cases the market may be ignoring value creation with companies paying back debt, lowering share count or increasing cash to reduce their enterprise value. So I wanted to isolate companies creating a larger comparative historical spread with a lower enterprise value to market price ratio over time. For tonight I just will focus on the apparel industry.
The overlooked value candidates had a historical ratio of EV/Market capitalization that grew smaller as the enterprise value was reduced faster than the market price. These companies bought back shares, paid down debt or increased the cash balance as the market price did not reflect these positive changes as evident by the lower ratio.
I started with a pool of 39 apparel stores ;
CBK : ranked # 2 based on lowest EV/Revenue @ .377; The EV of the firm has dropped significantly from 2005 to present. EV per share averaged 22.12 in 2006 and now sits at 4.97 or $175,695,500. The annual revenue was recently 450 million. The lower enterprise value was achieved by lowering total liabilities (70.6 million 2006) to (62.1 million current), share count reduction (36.220 million 2006) to (35.372 million current) and offset by a cash balance (92.3 million 2006) to (99.3 million current). The cash as a percentage of the market price actually increased from 2006 at around 10% per market price versus the current cash as a percentage of 40.90% of price.
The company has struggled to return to profitability over the past few years. Margins have declined slightly and the difficult economy for apparel since the beginning of 2008 has been challenging. But for this post I’m looking for mean reversion and CBK qualifies. Value institution reporting ownership period ending 09/30/10: Royce holds 6.47% of shares outstanding, ROBECO INVESTMENT MANAGEMENT 1.28%, KENNEDY CAPITAL MANAGEMENT INC 1.55% also added to their position.
Current dividend yield 4.20%
Historically ROIC was strong; 2004 24.50%, 2005 16.55%, 2006 17.09%, 2007 16.10% and 2008 in 7.66%
FCF/Sales prior 5 year average was 4.40%
Insider .84%
Institutions: 94%
Short as a percentage of float 4.00%
5-Year Range: 2.46-31.25
Current price = 5.77
A mean reversion candidate worth a closer look.
CACH: ranked # 1 based on lowest EV/Revenue @ .227; The EV of the firm has dropped significantly from 2005 to present. EV per share averaged 18.36 in 2006 and now sits at 4.41 or 56,552,880. The annual revenue was 215 million. The lower enterprise value was achieved by lowering total liabilities (51.59 million 2005) to (35.82 million current), share count reduction (16.15 million 2005) to (12.76 million current) and offset by a cash balance (53.27 million 2005) to (26.84 million current). The cash as a percentage of the market price actually increased from 2005 at around 20% per market price versus the current cash as a percentage of 75% of price.
The company has struggled to return to profitability over the past few years. Margins have declined and the difficult economy for apparel since the beginning of 2008 has been challenging. But for this post I’m looking for mean reversion and CACH qualifies. Value institution reporting additional purchases for the period ending 09/30/10: Michael Price holds 14.07% of shares outstanding, FULLER & THALER ASSET MANAGEMENT, KENNEDY CAPITAL MANAGEMENT INC also added to their position.
The FCF has been erratic and the low historical ROIC indicates a company that needs management changes.
Insider 16%
Institutions: 66%
5-Year Range: 1.41-26.32
Current Price = 3.72
Short as a percentage of float 1.08%
