Few interesting facts about Fred
Something to note about Fred is the decline in stock price in the last month. The stock prices of all the related companies such as 99 Cents Only Stores (NYSE:NDN), Duckwall-ALCO Stores (DUCK) and Family Dollar Stores (NYSE:FDO) have fallen since July end, mainly after the first quarter report of the domestic and global economy that pushed the investors' confidence down even further.
Additionally, the PE of Fred, 14.01x, is pretty much with the industry standard, which is in fact more than Wal-Mart's (NYSE:WMT) 11.96x and Target's (NYSE:TGT) 12.12x, although what surprises me is the debt to assets ratio that stands at 0.95x. Is the company not taking in extra capital to invest further into the business? Compared to this, Dollar General's debt to asset ratio is around 34.45x. Even the debt to equity ratio of Fred is around one-hundredth of that of Target's.
You might be interested to know that the current ratio of Fred is 2.91x, which again tops most of the related companies. What is happening here? Is it not successfully utilizing its capital for future growth and improvement?
Into Fred's financial statements
The company's total revenue had increased to over $1.84 billion in FY2011 from $1.79 billion in FY2010. Notably, the company has curbed its interest expense to $424,000 this year from $482 last year, which already proves the low debt to asset ratio above.
It must be noted that the common equity went down to $131.3 million this year from $131.6 million last year, which is not good for investors. With the rising account receivables and declining cash assets, it can be said that the company is allowing credits trying to maximize its revenue in this economy state. But higher sales on higher credit doesn't really make for good business.
Needless to say, a lot of cash is going into capital expenditure, but that sounds strange when the company just opened two stores and one pharmacy as opposed to Dollar Tree's over 250 new stores last quarter. The company spent renovating over 68 stores this quarter, but that's not enough. Is Fred not being able to channelize the investment in the most effective manner? It shows that the return on average assets of Fred is around 5.07x, the second lowest to Tuesday Morning Corp. (NASDAQ:TUES) and pretty much lower than most other companies. This shows that the company might be having problems with investing for maximum returns, compared to its competitors.
I really don't feel Fred is a buy right now. Perhaps I should watch another quarter to finalize my decision.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.