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Steelcase, Inc. (SCS) is a very good business, with a decent balance sheet and a good management. It also sells at a price that seems cheap relative to its pre-recession earnings. The company has been in business for over 100 years, and can be expected to stay put for a long time.

Some of the key factors for analysis

1. Business Model

Steelcase has leveraged its innovative edge, its wise management, and its long experience as an office furniture retailer to achieve its success The company is constantly striving to separate itself from the competition.

The company offers an integrated portfolio of furniture and seating products. It also offers workplace strategy consulting, lease origination services and furniture and asset management. Many of the company's furniture products are built with innovative technology and are very popular. Steelcase is the global leader in the production and sales of office furniture.

The company focuses more on innovative products than on run-of-the-mill furniture. It has successfully attempted to create a competitive advantage by building its research capabilities. Case in point is "its 23-person research team, which includes an anthropologist, conducts interviews and surveys, films office activities and uses sensors to measure workers' use of various rooms and furnishings." The company's primary focus is on critical thinking and developing smart solutions. Key evolutions and forces are carefully studied and lead to revolutionary products such as this chair that increases comfort while using newer products such as iPads. Increased innovation allows this business to differentiate itself from its competitors.

It is because of this ingenuity that the company was named one of Fortune magazine's "Most Admired Companies" in the Home equipment, Furnishings industry sector. The company ranked fourth, and shared the listing with companies such as Whirlpool (WHR) and Tupperware (TUP). This award displays the love of the company's products amongst its customers.

The company has management that allows and encourages creativity. The CEO, James Hackett, "has worked at the Grand Rapids, Mich.-based company for 31 years and headed it for 18." Hackett understands the business model very well and has been instrumental in strengthening it.

2. Cash Reserves

The company's current ratio was at 1.60 on February 22, 2013. Even though this ratio is not good enough to suggest high financial security, the company's solid business model allows it some margin for risk.

The long-term debt to equity ratio was a comfortable .42. The company has not been irrational regarding its finances and the low leverage and good liquidity suggest the company has room to make acquisitions or to suffer rare losses, if need be.

3. Risks:

An adverse change in the philosophy of the company, from innovation oriented to otherwise would reduce the company's competitive advantage.

Also, the replacement of current CEO, James Hackett, with someone with far less experience or of different vision could also impact the company's sustainability.

The company must keep a neat balance sheet so as to remain ready for key opportunities for acquisitions. A highly leveraged balance sheet would increase unnecessary risk and make the business unattractive for long-term investment.

4. Stock Price:

The stock of the company seems overpriced compared with the market. Its PE ratio is at 43.76. However, the company's net earnings are far below its pre-recession levels (last year's income was about a third of 2007's), and the market may have raised the price with an expectation of a return to those levels. Regardless, the company's business model is sustainable and the company seems prepared and able to maintain its edge in the industry. The company's stock is a buy for long-term investors.

Conclusion

Steelcase is a "BUY" for long-term investors (those who buy stocks for their long-term earning power and safety). The company succeeds due to its focus on innovative products, and due to management that encourages such innovation. As long as the company can keep these two key factors in order, it should do fine.

Source: Steelcase, Inc: Great Business Model