However, I have decided to pick up a few more shares at the current price based on what I believe to be a better valuation than previously discussed.
Specifically, I had based the valuation on owner earnings (defined as net income + D&A – capex) of 10.5M. This is a trailing-twelve-month figure. Taking a more forward-looking approach, the company has generated 7M in owner earnings in the first half of this year which implies a run rate of 14M for the year.
With an enterprise value of 201.9M, this means that the company is trading at an EV/OE multiple of 14.4. A DCF calculation, using an 11% discount rate, a 5-year growth period, and no terminal growth shows that the current price is based on the assumption of 12% growth. The company seems poised to easily exceed that level of growth and this has induced me to add to my position.
Disclosure: Author holds a long position in VSE