Scott Wachsler

Baseline equity research, all cap value, long only, value
Scott Wachsler
Baseline equity research, all cap value, long only, value
Contributor since: 2010
Company: Wax Ink
I read through your article several times looking for your valuation of the company, but I never seemed to find it. You did explain what how the markets value the company, but such information is really of little value to an investor, or at least it is to me.
The YoY I mentioned is from 12/31/12 to 12/31/13. The increase you saw in May will be for the year ending 12/31/14.
CT Programmer;
The report was not to get anyone to change their mind or their position. As I noted, when you drill down through their financials, you come up with a stock that has a value considerably greater than it's current pricing.
If you click on the company name, you can download my worksheet which was the basis for my report and hopefully but to rest your comment about innuendo and speculation.
Were I shareholder, and there are some extremely well managed money managers that have substantial client positions in the stock, I would simply have to ask myself some hard questions about maintaining a position at this time.
The idea behind my report was merely to highlight what I saw and leave the rest for those interested to decide for themselves.
As to the days of the tech bubble, you are quite correct, a comparison of prices from today to back then does seem unrealistic. The point was that the stock price doesn't really seem to have done much over that 14 year period of time, which made me wonder, why will it move higher going forward since nothing much seems to have changed.
As always I appreciate your comments, good or bad, as it they help to fuel an on going discussion which will hopefully makes us all better investors.
Great comment regarding buyback valuation. I realize much of if was for illustrative purposes only, used to highlight the mechanics of the valuation. The problem I have with it, is it requires assumptions and guess work.
For one helluva lot less money, the company could simply do a reverse split and miracle of miracles, fewer shares outstanding, higher stock price. Done and done.
The shorts are not expecting a collapse at all. In fact, included on the worksheet you can download, if like firsttracks, you follow the link, is a financial metric called Days to Cover. For SWHC, the Days to Cover number is almost 14. That amount of time is double the average amount of time normally set aside to cover a short position.
I am all for your comments regarding my report, be they good or bad.
But when you say I provide no financial metrics, then I realize you did not read the report.
In the very first sentence the name of the company is linked to the worksheet I used to help me produce this report. If you would like financial metrics, just click on the link.
I don't ask you for anything such as an e-mail address, a user name, none of that. I'm not going to send you a "free" report, nothing.
All you have to do is follow the link. For that matter you don't even have to download the PDF file, you can view it on-line.
Certainly I misunderstand many things, including the cash required to repurchase shares.
While a share repurchase program may initially keep share prices propped up, the single thing that will do that faster than anything else is earnings, which is where I would be spending my cash were it me.
Thanx eltoro...I try.
Certainly Morningstar is a very well respected company and many folks use their site as part of their investment research, just as they do the ValueLine site.
But I remind you that companies like Morningstar base their analysis and subsequent valuation numbers on a company's financial results from a single quarter.
That is the reason you will read that some analyst has rated some stock a buy with a price target of $x in March only to see the same analyst rate the same stock a sell with a lower price target in April.
How anyone can add long term value to their portfolio investing that way?
In the end, the only people that make any money following the Morningstars and the ValueLines and the rest of the Wall Street crowd, are the Morningstars and the ValueLines and the Wall Street crowd.
If you read through this thread you will see that I was told to get a grip because I refuse to use numbers from a single quarter, preferring instead to use the latest four unaudited quarters and the latest annual audited numbers as part of my valuation work.
Admittedly I am I conservative in my approach to investing. I use annual financial data and prior year earnings growth numbers.
And I do so because for working folks, the group that makes up the vast number of people in North America, risk capital is hard to come by.
All, once again I get what you are saying about the debt, whether my quoted numbers are still correct or not, etc. That was not my point in highlighting the amount of debt.
I merely highlighted the debt to show the amount and the year over year amount of increase in percent in effort to ask this one question.
What did the company get in return for allowing its debt to increase? To my eye it received nothing which was my point.
I never mentioned or implied that the company might go out of business, that it was financially weak, none of that.
All I did was highlight some financial metrics and ask why increase the company's exposure to financial risk when it seems there was no exposure to financial reward?
phil2k...I feel your pain, but realize that pipeline transmission can be dictated by the price of the product being transmitted.
I have no idea where crude or natural gas prices are at the moment, nor how much is stockpiled.
But for some reason it seems that something I read on Rig Zone is making me think that there is quite a bit of both.
Don't know what your cost basis is, but from a very long term buy and hold guy, if you don't need the money, just forget you own the stock.
When you actually need the money,,,more often than not, you will be surprised how well you have done.
That's the reason if I can't commit the funds to a minimum 5 year hold, I won't buy the stock.
Not sure how to be much plainer than this...
"Perhaps the single thing that stood out to me as I reviewed the company's latest annual financials..."
Almost everyone has gone to using quarterly financial data so yeah I sort of do have a "grip".
More serious individual investors glance at the 10Q stuff, but use the 10K stuff for financial analysis because it is audited.
Up until the audit, a company's quarterly financials are always subject to, and often do, change.
For me personally, I started my investing life as a value investor and did very well. But then the 1990s came along, specifically the tech bubble and I got away from my roots.
Watching one helluva pile of my money evaporate into thin air got my attention and I refocused on what I knew, value investing.
Perhaps not the "grip" you think I should have, but it is the one that works quite well for me.
Thanx for you comments, they are always appreciated.
Thanx to everyone for their comments. I appreciate them all, good or bad. I simply did not like the stock because I believe it to be currently selling for more than it is worth.
As to someone's comments regarding free cash flow, I believe if you will look, I said it had fallen by 53%.
Someone else also mentioned the amount of interest the company paid. My article did not mention the amount, it mentioned the rate which I thought was a bit excessive given today's cost of money.
As to CAPEX, again I did not mention a specific amount, I just noted that it was less year over year.
I also noted that several other financial metrics were lower year over year, and since it was brought up, as was EBITDA, which was lower year over year by 5%.
Now to debt, My point was, in my opinion, the company's debt levels are excessive. My question about debt was why did it increase when almost all of the other financial metrics decreased.
Like it or not, debt is a necessary evil. Management allowed the company's debt to increase, but it appears basis the company's latest 10k filing that it received nothing for this debt increase.
And that made me wonder, if the company got nothing in return for increasing the debt, why increase it at all?
As to the other things that someone said make my article worthless, all you need do is click on the name of the company at the start of the article and my worksheet, with all of the metrics you find paramount to equity analysis can be downloaded.
As to a hidden agenda, I don't have one at all. These were my thoughts regarding this company and why I would sell it if I owned it and pass on its purchase if I did not own it.
I attempted to state my conclusions clearly and in a short form article, and, I provided documentation that supported the conclusions I came to. I am sorry nobody appears to have actually read it.
For those that do own the stock, I wish you all the best with your investment.
You can't win them all. I'm glad you are doing well with the stock and I hope that continues.
JPM is in the business of making money, and they, unlike us mortals, have all the computing power needed to stay ahead of most of the markets.
So when a company adds a contract such as the one CUB received, especially one paid for by you and me, their analysts jump on it while the news is still fresh.
It is good for their trading desk, it is good for their institutional clients, and it is good for the research group. What I produce at Seeking Alpha, JPM produces for $250 and up.
The checks and balances for small, individual investors, is having at least some reasonable guess regarding fair value of the company before accepting the advise of a JPM.
The simple answer to your question is yes. Anytime a company has an opportunity to increase revenue, it benefits. Even if the revenue is earnings zero, the company benefits.
In the case of Cubic, as with almost all government contractors, what was awarded to the company falls within their business model, so both the government and the company know what to expect.
What the company does not yet know, is how much the contract extensions will be, and there will be many of them.
So over the life of the contract, I would think the company will make a fairly handsome return.
Thank you Dan...
I agree with you O2W. But they are good for fodder from time to time.
IBM will post $20 a share in EPS. What if they don't? In your particular case it would probably be and insignificant decline in price. But what about the folks that have a cost basis of $190+.
I doubt they are going to be happy. So the point is, determine a value in advance, compare your valuation to current pricing to help determine a risk, and the make the investment decision that's right for you.
Just because you believe my $80 valuation is wrong, and it well may be, then it's wrong for you, not for me.
I have no idea how many shares you have now, but whatever the number I am very glad things have worked out well for you. I hope you continue.
But consider for a moment that you are talking about one stock, while in my portfolio I have 66,122 shares spread out over 27 stocks, meaning we are not talking the same thing.
Learning together, it's what we should all strive to do. And in that light I am very glad that you have been enlightened.
As to financial statements, generally, I learned a very long time ago to think of them as food. A chef starts with different ingredients. It isn't until those ingredients are rearranged, that we see what has been prepared.
The analogy works for financial statements, when the many financial metrics are applied.
I can appreciate your irritation. But the rules of accountancy, while adjusted from time to time, are what they are, and the trick is to use them to your benefit.
As to seasonally adjusted, what does that mean. If, as I do, I examine an entire year of financial information, why do I care about the seasonally adjusted anything?
It's the same thing as GAAP and non-GAAP financial reporting. Intended only to make crappy sales numbers look like good sales numbers.
You are correct...sort of. Yes the stock could be exchanged for cash, but what about the shares of stock the company is authorized through its Articles of Incorporation to issue, that have not been issued?
Those shares are not shown on the balance sheet as an asset so conversely retired shares, or more importantly the money spent to retire the shares needs to be accounted for, which is how the reduction in cash is handled.
The important thing to me, and the reason I like to highlight it, is to make investors ask themselves why the company is spending money on share repurchases as opposed to reducing debt or paying a dividend.
It is those sorts of things that my article and my worksheets are intended to do...get potential investors to ask themselves questions.
To be really quite honest I have no idea what my annualized portfolio return is. I never really figured it out.
I it every week, so if you would like to see it, just go here.
I hope this makes sense since I am not an accountant.
When a company buys back its own shares, a reduction in company cash occurs which lowers cash which in turn lowers shareholder equity.
To account for this reduction in equity, the repurchased shares are carried on the balance sheet as a negative number. It is what is part of GAAP, Generally Accepted Accounting Practice.
The idea is since it is the company that issued the stock in the first place that has now removed the stock, the value of the stock is fixed at the time of repurchase and cannot change, while at the same time allowing the balance sheet to remain...balanced.
Thank you for your comments.
As to the negative number, treasury shares are nothing more than stock issued by the company that the company has repurchased.
If the company wants to hold them for re-issue at some later date, then often times they are referred to as Treasury Shares.
They are shown on the Balance Sheet as a negative number because they reduce Shareholder Equity.
As to the debt discussion, that is going to involve a fair amount of digging along with a fair amount of time.
While I am curious, perhaps one of the other folks on this thread can chime in about the company's debt structure.
The company is focusing on developing nations for future growth, how can you ignore the global economic impact?
They are the leader in what?
Year to date my return is 13.4%. With my current basket of stocks, my return is 68%.
Just remember, you are talking about 1 stock and I am talking about 27-33. That makes it hard to compare.
Of the 27 stocks in my portfolio, the average hold period is 4.6 years, with the oldest one held for 11 years and the newest one held for 2.5 months.
I simply figured out which financial metrics I believed added value to my research.
Once I had that down, I went through a number of consolidated financial statements from company 10K filings and figured out which financial information from which financial statement would provide me the metrics I wanted.
From that I built a spreadsheet with financial statement information on one side and all of the metrics I wanted on the other. Looking back on it, I wish I had built a database instead of a spreadsheet.
As to back data, yes, I have one for each year I have been following the company.
As for predictions, I would need to replace the light bulb in my crystal ball.
As to indicators, anything can be modified to publish indicators, but indicators are for a different sort of investor, one like I used to be 25 years ago, because they rely on mathematical probability to work, where as I rely on getting up and driving work.
Most go back five years, but the financial statements that go back into the late 90s is available in several places.
None of this is very complicated, but it took me almost three years just to work through all of the formulas, formatting, testing, etc. And while I don't mind sharing at all, I simply don't want to make it easy for someone to take my hard work and make it there own.
No I cannot. Which proves what? There is more to valuing an investment than PE.