Got a question about a stock that I follow?
Or just want to get a 3rd opinion on a stock or idea you have?
Then leave a comment and I or someone else will hopefully be able to answer.
When asking about your own value stock idea, please mention the following:
- Company name
- Stock ticker
- What type of strategy the stock falls under (e.g. merger, distressed, turnaround, net net, cheap Buffett style company etc etc)
- Anything else you want to share
(p.s. My circle of competence doesn’t expand to financial companies, pharma, bio-med or commodities)
September 22nd, 2009 at 11:07 am
SVT
use financial spreadsheet
DCF 29.22
Gram intrinsic value 19.04
currently 7.5
September 22nd, 2009 at 1:18 pm
Servotronics Inc (SVT)
Interesting idea.
The margins are good. Increasing since 2002. Capex is steady at around $0.5m where maintenance capex looks to be around $0.1-$0.2m.
I like how tangible shareholders equity goes up with in line with FCF.
Lowering debt while at the same time FCF/debt is increasing making the debt payments easily handled through FCF.
DCF 7% growth rate, 15% discount rate at a normalize FCF of $2m for the last year gives $18.78 which is still at a 60% discount to intrinsic value.
Apply EPS growth of 11% also, Graham value is around $15.
I get a normalized EPS of $0.62 so if I was to apply a simply multiple of say 12 the target price becomes $7.44 making it fairly valued. Of course I’ll have to see whether the EPS is a low ball estimate and whether the actual earnings power is better.
EPV: Reproduction value gives a value of $9.50. Tangible BV is $9.65. Actual EPV is $8.06.
This means that the company operates without any competitive advantages and is trading at fair value.
So the numbers show that if I factor in growth in current conditions, looks like the company is undervalued. If I ignore growth, the current price is about right.
Risk I see is that growth of sales has been flat or declined while inventory has gone up. This is a warning sign of bad things to come when it shows up in their income statement.
I’ll have to perform an inventory analysis to see what the inventory consists of and whether they are ramping up due to expected demand or whether it is a buildup of finished goods they can’t sell.
Also, what about its dependence on the military?? It’s a huge customer.
Something to consider but a good opportunity for about 2-3% of a portfolio if the remaining analysis is good.
September 22nd, 2009 at 7:35 pm
here is the inventory breakdown in the last three quarters from 10-Q in (thousands):
12/31/2008: raw material 4621, work-in-progress 4153, finished goods 1386
3/31/2009: raw material 4884, work-in-progress 5057, finished goods 1504
6/30/2009: raw material 5011, work-in-progress 5200, finished goods
1215
with finished goods down, is this a good sign that the company is building up raw material and work-in-progress to make more goods?
Dependence on one customer may not be bad if the customer is Uncle Sam. The bill will get paid and is back by the taxpayers. Consider multibillion dollars company such as RTN, NOC, LMT.
Thanks for the spreadsheet. i can concentrate on the business and at same times have good sense of the value of company.
September 23rd, 2009 at 9:23 am
Didn’t have time to look through the numbers but what you want to check is the increase in % of each inventory item and compare it to the percentage increase in sales from previous years. Also compare it to accounts receivables. If accounts receivables is getting higher than sales, that is another warning sign.
From the numbers you wrote above, it seems like it’s in a real good situation to profit and surprise wall street.
Finished goods going down, raw materials increasing and work in progress increases over the last 3 quarters announces that it is getting ready for increased demand or the demand is already there and they are trying to meet it.
From the inventory, looks like a great situation. No wonder wall street were surprised last time around.
I better get around to studying this in more detail.
September 23rd, 2009 at 10:27 pm
dig in more to the number:
Inventory turnover: 14.6 weeks 2006, 13.2 weeks 2007, 15.5 weeks 2008.
Account receivable turnover: 8.9 weeks 2006, 7.6 weeks 2007, 7.6 weeks 2008
Account payable turnover: 3.3 weeks 2006, 3.1 weeks 2007, 5.0 weeks 2008.
My Impression:
Uncle Sam is good paying customer even in a bad economy.
Inventory and account payable turnover increase in 2008 likely related to a bad economy.
September 24th, 2009 at 9:36 am
Im liking SVT.
If accounts payables increases, it means that the company is getting better terms and conditions to pay money to its suppliers or having trouble coming up with money to pay which I don’t think is the case.
With AR decreasing, finished goods decreasing and raw materials increasing, it makes the way for good earnings in the future.
Also make sure you check the accounts receivables trend over quarterly data not just yearly in this case.
Thinking of getting a 2-4% position.
September 28th, 2009 at 1:32 pm
two more stocks for turn around energy sector
PTEN
GHM
both stocks trading below intrinsic value. good earning gowth.
PTEN is Robert Rodriguez pick 7.76% of FPA portfolio.
any comments appreciated.
initiated positions in SVT
September 29th, 2009 at 4:18 pm
I’ll put up the request in the forum section. Will close this section of the site soon.
December 14th, 2009 at 7:18 am
LUBYS
NYSE:LUB
net net