2009 Best Small Companies Part 2

This is a continuation of the series of valuing each of the 200 Forbes Best Small Companies

2009 Forbes 200 Best Small Companies Part 1 | Part 2 | Part 3 | Part 4 | Part 5

In this list, I’ll list up the valuation results of companies 11-34 from the stock value spreadsheet. You can also calculate the stock value yourself with the free dcf spreadsheet as well as the free Benjamin Graham formula spreadsheet.

Dolby (DLB)

dolbyDolby is the type of company you just cannot go wrong with whenever you buy the stock at the right price. The only difficultly is that DLB rarely trades at a cheap enough price.

I’ve been following DLB for a couple of years now and the company just continues to perform excellently. As long as people have ears and listen to things, DLB will be there somehow. The company collects royalties from its sound technology licenses and with Dolby technology in the cinema, tv, blu ray, Windows and the list goes on.

DLB has always had excellent fundamentals and organic growth. FCF over for the past 5 years has grown by about 56% and management has been able to make a return of 18.4c off every $1 of cash invested.

Capex is very low compared to its revenue which is why every 20c from $1 of sales is converted to FCF.

All I can do is just wait for the price I’m hoping for.

  • Price as of writing: $42.06
  • DCF: $42.06
  • Graham Formula: $40.19
  • EPV: $34.41

dlb-valuation

Synaptics (SYNA)

logo_synapticsAnother company that looks to be continually improving. Synaptics sells user interface devices such as the touchpad on your laptop, the iPod, touch screen devices and so on.

Despite the recession 2009 the company posted it’s highest revenue backed by big positive flows of cash to the bottom line. This may be due to the huge exponential demand for innovative user interfaces in devices.

While CROIC is average at 8.9%, cash growth from operations increased by 29.4% over the past 5 years while FCF grew at 20.7%.

Margins are also improving while at the same time they’ve been reducing debt.

  • Price as of writing: $25.14
  • DCF: $27.48
  • Graham Formula: $21.55
  • EPV: $17.96

syna-valuation

Jos. A. Bank Clothiers (JOSB)

josb-logoOne of the many missed opportunities of 2008. In part 3 of the 2008 Forbes best companies list, JOSB was one of the few rare companies to be trading a what I considered to be a margin of safety. Now, it seems like the company value continues to advance with the new estimate now up to the $50′s compared to the mid $40′s last year.

Over the past 5 years, the company exhibits excellent fundamentals with great FCF growth, good consistent CROIC and returns.

Margins is super steady and consistent.

Capex seems to be hanging steady at the $30m range while revenues continue on up. JOSB seems to be a great example of price meeting value.

  • Price as of writing: $42.62
  • DCF: $50.18
  • Graham Formula: $51.99
  • EPV: $53.20

josb-valuation

Capella Education Company (CPLA)

capella-logoEducation stocks are effective recession proof investments but I’m just not sure why they all trade at such high premiums. Of all the education stocks I’ve gone through, they all look to be trading much higher than intrinsic value.

While the future may be rosy, growth is just too murky to try and estimate which is why my conservative values of future predictions indicate CPLA well over intrinsic value.

I personally have yet to meet a value investor that owns a big position in education companies.

  • Price as of writing: $71.91
  • DCF: $43.25
  • Graham Formula: $41.53
  • EPV: $44.51

cpla-valuation

Middleby Corp (MIDD)

midd-logo Makes commercial cooking equipment. MIDD regularly makes the list and always seems to defy the odds by producing excellent results.

The company has never been at a loss during the past 10 years. Capex is very low at less than $10m but their net asset book value is negative as a big portion is made up of goodwill and other intangibles.

  • Price as of writing: $47.52
  • DCF: $50.06
  • Graham Formula: $67.09
  • EPV: $20.32

midd-valuation

Summary

Despite a large portion of the list being made up of growth stocks, a handful of companies are worthy of studying and keeping an eye on. We’ll see what the next bunch can offer.

Disclosure

No positions in any stocks mentioned.

About Jae Jun


Jae Jun is the founder of Old School Value. He is on a mission to provide practical and actionable value investing tools, tutorials and educational material to help empower the individual investor. Keep in touch with Jae via any of the methods linked below.

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  • Salsero

    Thanks. I am very much enjoying your review of these companies.

  • http://www.oldschoolvalue.com Jae Jun

    Thanks Salsero. I’m glad you are enjoying this review of the companies.

  • Andy

    You think that Apollo is an overvalued education company?

  • http://www.oldschoolvalue.com Jae Jun

    Actually you may be onto something. Apollo looks interesting and cheap when comparing price to value.

  • D

    I have watched DLB for a while too. I liked the company, but i seemed to like DTS more. Not sure what the difference is since they both seem to offer similar products and sometimes both have their names on brands. I didn’t buy because i didn’t see tangible value and am poor at gauging ‘growth value’.

    The second comment i had was comparing schools, which i agree seem to trade at unjustified multiples, to something like SCHS or perhaps MHP?

    I never knew what SYNA did but its interesting to know and should be lots of growth in that area.

    Have a look at one Canadian retailer, just to compare with JOSB, and let me know what you think? RET.a is a ladies retailer which was hit hard but is bouncing back.

    D

  • http://www.oldschoolvalue.com Jae Jun

    I always liked DLB because it is more mainstream and in far more products. DTS has more software related products which you buy while royalties makes up a lot of revenue for DLB. I believe earnings royalties is one the best business models out there. It’s so profitable.

    Interesting point about SCHS and MHP. Education material providers may well be more contrarian than a school. Just one thing Im thinking about is that SCHS, MHP and related companies will compete with each other for the actual schools to buy or use their products.

    SYNA is very interesting because the way the tech trend is going, it’s all towards touch devices. Everything is turning towards touch. Navigation systems in the car, portable GPS, phones, mp3 players, computers etc etc

    Just a question about RET. What is your opinion on small to mid caps that give dividends? Personally, I’m not a fan. It just shows that they either don’t have much opportunity to grow and there is a lot of potential for management to be pig headed because they don’t want to cut it when they really should.

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