- Lease income timing is masking true growth.
- The lease portfolio grew at 33% annualized, and is on track for further growth.
- Company share repurchases and open market purchases by John Morgan continue to indicate shares are undervalued.
Winmark (NASDAQ:WINA) posted steady growth from the franchising businesses with 42 net new stores opened, but was impacted by the lower profitability from the leasing portfolio. We think that no analyst coverage, lack of forecasts by the company and the market's misunderstanding of the timing in the leasing portfolio continues to depress shares.
The 15% growth of the leasing portfolio over the past six months, or 33% annual growth, continues to prove that Winmark's leasing portfolio is growing at a very high rate and that capital is being allocated well. Keep in mind that the leasing business was created in 2004 and was $43.2 million by the end of June this year. From December 28, 2004 to December 28, 2013, the leasing portfolio has grown nearly 65% annually, and still maintains 30% annual growth. This growth has happened even though Winmark continues to compete with Winthrop Resources, John Morgan's previous leasing business, and many other competitors which were not around during his first venture. Furthermore, it is highly likely that Winthrop Resources has much lower cost of capital as a subsidiary of TCF Financial Corp. (NYSE:TCB), allowing it to offer lower financing than Winmark.
We still believe that shares are currently undervalued and we are in good company. Winmark took on $23.1 million in a line of credit to repurchase shares. 101,162 shares were purchased at an average $71.04 per share. John Morgan has also recently purchased 6,500 shares on the open market at an average price of $66.2 per share. John Morgan has a very strong track record of purchasing shares on the open market when the company is undervalued. Although both numbers look low, keep in mind there are only 5 million shares outstanding, making them meaningful purchases.
Additional disclosure: This article is meant for instructional purposes and not meant as a recommendation to buy or sell. The only kind of intelligent investing is through your own due diligence.