International Speedway Corporation (ISCA) owns or operates 13 race tracks in the US, including Daytona.
The company generates revenue form the admissions, broadcasting, advertising, food and merchandise sales at the 100+ races it organizes every year. The company is currently trading at $25 per share and came into my idea pipeline as it is rated by Morningstar as a wide-moat 5 star company.
1- Business Performance Risk
Status | |
FCF / Sales | Last twelve months (LTM): 21%, at the high end of historical performance which has traditionally been in the high 10’s |
ROE | LTM: 4.3% below the company’s 5 year average of 9.4%. The company’s ROE has been volatile over the last 10 years and was almost 0% in 2009 |
ROA | LTM: 2.5%, below ISCA’s 5-year average of 5.4%. Similar to ROE, ROA has been volatile over the last 10 years |
Revenue Growth | LTM: -6.7%. Revenues have been volatile for ISCA with the last 2 fiscal years being in the red after a few years of high growth. |
Cash distribution to shareholders | ISCA pays a meager dividend, yielding 0.7% for a payout of ~15% Over the last 5 years the company has retired 8% of its stock |
ISCA appears to me as a risky business with strong free cash flow generation but low and declining ROE/ROAs. In addition, the company seems to be facing serious headwinds with revenue having declined for almost 3 years in a row now.
In terms of returns, the company spends 15% of its earnings on a 0.7% dividend yield and would need to spend 50% of earnings on growth, making the accommodating assumption that the company could grow at 5% and return its ROE to ~10%. It would then have about 35% of earnings left to spend on buybacks, yielding about 1.5% return to investors. Even under this favorable scenario the intrinsic returns of the company seem limited to less than 8%!
2- Balance Sheet Risk
Status | |
LT Debt / Equity | 0.2x – has been declining over the last 5 years |
Current Ratio | 1.1x, in line with past practices |
Limited debt; aggressive but manageable current ratio as the company has enough cash on had to cover its current liabilities
3- Valuation Risk
Status | |
Cash Return | 10.5x |
P/E | 24.3x!, below the industry average of 30x, but much higher than the S&P 500 at 13.7x. |
While the cash valuation appears attractive the P/E of the company tells a different story; one in which there probably isn’t much margin of safety.
Conclusion
ISCA’s business performance points to a risky business with some cyclicality, low returns and current declines in sales… which is enough to deter me! Add to that relatively high valuation and I will clearly pass on ISCA’s stock and will not perform a Company Analysis.
Disclosure: No position
