Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Undervalued Specialty Retailer

|Includes:Books-A-Million, Inc. (BAMM)

Books-A-Million Inc. operates superstores and traditional bookstores that offer a selection of hardcover and paperback books, magazines, and newspapers. It also offers other merchandise, including gifts, cards, collectibles, magazines, music, and DVDs, as well as coffee, tea, and other edible products. The company also offers its products over the Internet at Booksamillion.com.

 
When searching out a potential investment we look for two things:

 

1. Value based on Current Price & Capitalization

2. Future Growth or other Catalysts that will result in Price Appreciation

 

We look at historical data to provide “clues” for the above. Naturally, since historical data is yesterday’s news its’ significance is not as important as future developments. However, garnering good “clues” can result in making sound investment decisions for the timing of when to buy a stock.  Many "good" companies that are overpriced make "poor" investments because they were purchased at the wrong time. We prepare a comprehensive Excel report whenever researching a company.  Anyone interested in our report just email me at resgroweq@yahoo.com and we will send it to you.

 

Below is some historical info on BAMM: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Share Price

 

 

    Net Income

 

Optng Cash Flow

 

Dvdnds

Shrs

#

FYE

High

Low

 

Sales

$ Amt

EPS

 

$ Amt

Per Shr

 

Per Shr

O/S

Stores

01/30/2010

   $15.00

    $2.25

 

   $508,666

   $13,836

   $0.88

 

   $31,985

$2.03

 

   $ 0.30

  15,744

   223

01/31/2009

   11.19

    1.70

 

   515,320

   10,573

   0.67

 

   39,223

2.50

 

     0.28

  15,676

   220

02/02/2008

   20.70

    9.61

 

   536,054

   16,522

   1.00

 

   34,494

2.09

 

     3.36

  16,476

   208

02/03/2007

   23.70

  10.35

 

   520,417

   18,887

   1.12

 

   21,306

1.27

 

     0.33

  16,818

   206

01/28/2006

   11.70

    7.02

 

   503,751

   13,067

   0.78

 

   36,713

2.19

 

     0.23

  16,964

   205

01/29/2005

   10.70

    5.25

 

   474,099

   10,199

   0.59

 

   47,193

2.75

 

     0.23

  17,178

   206

01/31/2004

     7.18

    2.00

 

   457,234

           7,126

   0.42

 

   34,678

2.07

 

 0.00

  16,789

   202

        Note: Amounts above are in thousands except for per share data and total # of stores.

 

Click to enlarge

 

The closing price of BAMM on April 20, 2010 was $7.60 giving it a market cap of approximately $120 million (.24 X annual sales); a PE ratio of 8.6 X diluted EPS of $0.88 in the fiscal year end 01-30-10; and a dividend yield of 3.95% (based on a $0.30 per share declared dividend). Despite sales declining by -1.3% in the FYE 01-30-10 vs. 01-31-09, full taxed EPS increased by just over +30%. I really like the company's history of generating strong operating cash flow each year, which has averaged over $2.00+ per share in all fiscal years ending from 2004 through 2010, except for 2007 ( $1.27 per share).

 

The company has been using the cash generated in ways that should benefit the share price in the future. Besides regular quarterly dividends and certain special dividends (including a $3.00 per share dividend in June 2007) they have been buying back shares and opening new stores.  The weighted average diluted shares outstanding were reduced by just over 1 million shares since 01-31-2004 (15.7 million shares 01-30-10 versus 16.8 million shares 01-31-04). Additionally, “On March 11, 2010, the Board of Directors (the “Board”) also authorized a new common stock repurchase program (the “March 2010 Program”) of $5.0 million to repurchase our common stock through April 30, 2011”. 

 

 From the fiscal year ended 01-29-05 through the fiscal year ended 02-02-08 the total number of stores open remained fairly constant in a narrow range (205 to 208 stores).  After 02-02-08 management became more aggressive in opening new stores and at 01-30-2010 the total stores open increased to 223. Additionally new stores have been opened in Pennsylvania and New Jersey during the current fiscal year. As of 01-31-04 the stores open included 163 superstores and 39 traditional stores and at 01-30-10 there were 201 superstores and 22 traditional stores  reflecting a change towards having more superstores.

 

The company’s ability to generate strong operating cash flow has allowed them to make an investment in Yogurt Mountain Holding, LLC described in the most recent Form 10K as follows:

 

On March 24, 2010, the Company entered into a Limited Liability Company Agreement (the “Agreement”) to purchase a 40% equity interest in Yogurt Mountain Holding, LLC (“Yogurt Mountain”).  As part of the Agreement, the Company contributed $3.0 million in cash.  Yogurt Mountain was formed for the purpose of developing and operating retail yogurt stores and franchising retail yogurt stores to third party franchisees. The retail stores offer tart yogurts that cater to the growing trend in healthy foods.  Yogurt Mountain currently operates two retail yogurt stores in Alabama.

 

In connection with the Agreement, the Company entered a Line of Credit Agreement (the “Agreement”) with Yogurt Mountain pursuant to which the Company has committed to provide up to $1.5 million to Yogurt Mountain under a non-revolving line of credit through March 2015.  The proceeds from the Agreement shall be used by Yogurt Mountain for the purpose of new store growth capital requirements”.    

 

When looking at a chart on BAMM, it appears that the stock has bottomed out in the $6 to $7+ area and could head higher in the future. Based on all the info mentioned above, I believe BAMM has the potential for good upside price appreciation and has more limited downside risk. I have not seen an analysts with published future consensus Revenue and EPS figures for BAMM.

Joseph Levy, General Partner
LLG Equities, LP

 



Disclosure: LLG Equities, LP has a long position in BAMM.

Disclosure: LLG Equities, LP has a long position in BAMM
Stocks: BAMM