2009 Best Small Companies Part 3

November 22, 2009 | Comments (8)

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 35-50. Keep in mind that my valuations are only as correct as my assumptions and knowledge of the company and industry. Since this is a quick rundown of each company, I’m definitely going to be wrong on many of these companies. As long as my accuracy is above 50% and I apply a big margin of safety, in my final analysis, I should be able to own good companies and make money.

GulfMark Offshore (GLF)

gulfmarkoffshorelogoProvides offshore marine services to offshore oil and natural gas exploration and production companies.

Not much growth in FCF due to the industry cycles and the CROIC isn’t great as well. Many down cycles as there are up.

However, margins are increasing at a fast rate while debt is being reduced. The company has been reducing costs over the past few years which has helped their margins and profits.

Another point to look into is their tax rates. By the numbers, I would assume they operate in regions beyond US borders and ranges from as high up as 24% to receiving tax breaks. Since taxes also affect the net income, making adjustments to tax numbers will also affect the intrinsic value.

Looks to be undervalued at current prices. Because of the cyclical and capital expenditure nature, we need to adjust FCF

  • Price as of writing: $28.01
  • DCF: $41.94
  • Graham Formula: $48.30
  • EPV: $37.33

Ensign Group (ENSG)

ensign-logoYoung public company just under 5 years of operating history but it is a profitable business.

ENSG provides nursing and rehab services throughout California, Arizon, Texas, Washington, Utah and Idaho.

While FCF and CROIC growth are average, it seems to be predictable.

There has been big drops in gross margins and without a long history, it is difficult to determine whether it is just temporary and a result of the economy or the company losing ground to competitors.

  • Price as of writing: $14.53
  • DCF: $13.52
  • Graham Formula: $19.84
  • EPV: $10.97

Chattem Inc (CHTT)

chattem-logoSells OTC healthcare products, toiletries and dietary supplements.

Having a small portfolio and not being a dividend investor, CHTT would be a company that I wouldn’t mind owning instead of JNJ or PG.

The company has great fundamentals. FCF and CROIC growth is above 26% over the past 5 years, margins are consistent, good returns off its equity and assets, steady inventory turnover.

In 2008, I incorrectly valued CHTT to be worth around $30. Revisiting an intrinsic value calculation of the company and its performance 1 year later, it’s clear that the value is much higher than $30.

  • Price as of writing: $66.44
  • DCF: $71.70
  • Graham Formula: $66.39
  • EPV: $26.95

LSB Industries (LXU)

lxu-logoClimate control segment sells a range of heating, ventilation and air conditioning products. Chemical Business manufactures and sells nitrogen based chemical products for the industrial. mining and agricultural market.

Big jump in FCF in 2007 which doesn’t seem to be repeatable so that needs to be adjusted. Managements use of assets and capital seems to be only average.

LSB industries is a holding company so a quick valuation won’t do it justice as you have to go through the two business segments. Selling air conditioners and chemical products are completely different and will require separate analysis of each to come up with a proper value.

  • Price as of writing: $11.85
  • DCF: $14.64
  • Graham Formula: $16.79
  • EPV: $16.64

NutriSystem (NTRI)

nutrisystem-001-290x200Sells weight management meals.

NTRI started to sell their products in Wal-Mart which boosted their stock price and reached its intrinsic value. While a stock price of $60 in 2006-2007 was was over optimistic, mid $20′s is about where I see NTRI.

Management has done a great job in utilizing capital to generate large returns. In 2008, the company was able to return $0.39 for every $1.00 invested. Amazing.

The one thing to be careful with a company like NTRI is growth. From experience, growth is the worst variable to try and predict or fiddle around with. Common sense is required. Just keep in mind that no company will ever sustain a growth rate of over 50% for years on end. 1-2 years maybe but don’t get caught with your pants down by being over optimistic.

  • Price as of writing: $22.79
  • DCF: $21.12
  • Graham Formula: $27.90
  • EPV: $31.39

PDF of the First 50 Best Small Companies

2009 Forbes 200 Best Small Companies no.1-50

Disclosure

No positions in any stocks mentioned.

  • http://stockmanmarc.blogspot.com/2009/01/graham-greenblatt-gg-formula.html stockmanmarc

    Only one I have kept up with as of late is $NTRI. Have been long for almost a year and think it has reached its intrinsic value. Not to say that this stock can’t go higher, however using the Graham or Greenblatt approach I think they would be taking profits on this, its also trading at a rich multiple now. Will have to check into the others.
    .-= stockmanmarc´s last blog ..Steak n Shake Transforming Into Mini Berkshire Hathaway =-.

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