Collectors Universe, Inc. (NASDAQ:CLCT) is a very promising company. It has a competitive advantage in its industry due to its good business model. Collectors Universe also offers a cheap stock and a high dividend yield. It boasts better financial ratios and lower leverage, and offers a promising future. Due to the durability of the business, long-term investors are advised to consider adding this stock to their portfolio.
Important Factors For Analysis
Collectors Universe is one of the leaders in the coins and memorabilia grading industry. The company is one of the two most popular companies that offer these services. Collectors Universe has a bright future due to its very popular brands, high quality of service and ownership of other complimentary businesses. As a result of these successes and its future promise, it was listed in Forbes' 'America's Best Small Companies' list.
PCGS (Professional Coin Grading Service), is the company's coin authentication and grading service. PCGS is considered, by many, the best grading service in the world. As a result, coins graded by PCGS trade at a premium over those graded by most other companies.
Collectors Universe also runs 'PSA' (Professional Sports Authenticator), a sports and trading cards grading service; and 'PSA/DNA' (PSA/DNA Authentication Services), which is a grading service for vintage autographs and memorabilia.
The most important factors for success in this industry are brand recognition, integrity, and responsiveness of service. Collectors Universe does a good job at all of these factors. In addition, the company employed 43 experts in 2012. These experts have an overall average experience of 26 years. Since talented collectibles experts are in short supply, the company gains an advantage by employing many of them. Overall, the company has a durable competitive advantage over most of its competitors due to its bigger size, greater brand recognition, and better quality of services.
The company has a focus on global expansion. It recently opened an office in France and attended a trade show in Hong Kong. As it further expands abroad, the revenue should increase at much higher rates.
Collectors universe also owns the Certified Coin Exchange (CCE), the world's largest dealer-to-dealer coin-trading network. As the CCE grows, it can become a prominent market for the PCGS and PSA products.
The company has a current ratio of 2.94. Apparently, the company has done a good job of managing its cash resources. However, the current ratio has fallen significantly over the last 10 years. It was 5.4 in 2003. While the current liabilities have risen, the current assets have almost remained the same. Regardless, the current ratio is above par and would be deemed comfortable above 2.
Collectors Universe has no long-term debt. The profit margin is very high at 14%. Clearly, the company has a very good balance sheet, and coupled with the good business model, it makes for a compelling investment.
The stock sells at a PE ratio(ttm) of 16.75. It seems very low when viewed against an annual income growth of 10% over the last nine years. This part alone, makes the stock a buy. However, the best part about the stock is its high dividend yield, at 10%. The dividends have remained high over the last few years, however, they may decline in the future since the current ratio of the company has fallen over the last 10 years. Also, last year's dividend was 1.5 times the year's earnings. In addition, the company may need cash for any new acquisitions.
If the dividend is cut, the share price may fall, but the economic strength of the company and the low PE ratio would keep a lower bound on the stock price.
The biggest risk the company faces is the loss of reputation in the market. Collectors Universe faces fierce competition from its closest competitor, Numismatic Guaranty Corporation. Any display of loss of integrity or a loss of quality in grading services would adversely impact the earnings in the future.
The company must continue to make acquisitions that assist its current portfolio of businesses. It must also continue to make inroads into the Asian markets.
Long-term investors are advised to "BUY' this stock. The PE ratio is very low and the dividends, though not sustainable at the current levels, should stay relatively high in the future. The company's earnings potential is assisted by its higher quality of service and huge brand recognition. The stock is likely to go much higher in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.