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Buckle Inc. (BKE) Quick Review: I'm holding on!

|Includes:The Buckle, Inc. (BKE)

Buckle Inc. is currently trading at $28.1 and is in the investment pipeline as a “legacy” holding of mine.  I should thus decide whether to keep it in my portfolio or not! 

 

1- Business Performance Risk

Metric

Status

FCF / Sales

Over the last twelve months (“LTM”), BKE’s FCF/sales was 9.4% in line with the company’s performance over the last 10 years; ranging from 8% to 15%, with 2002 being only 4%

ROE

LTM: 33%. Over the last 10 years, BKE delivered satisfactory ROE, ranging between 15% to 20% between 2001 and 2007 and reaching 30%+ in 2008

ROA

LTM: 25%, in line with BEC’s performance between 11% and 27% over the last 10 years

Revenue Growth

Revenue growth has been strong and quite stable on a 10 year basis between 9% (most recently) and 12%+

Cash distribution to shareholders

BEC’s dividend yield is currently 2.9% (ahead of the S&P500) with a payout ratio of ~30%

BEC does not seem to be making much repurchases, with the # of outstanding shares being more or less constant over the last 10 years

Click to enlarge

BKE’s business performance is strong with high FCF generation and strong ROE/ROA’s in particular in recent years and despite the slowdown in consumer spending. In addition, BKE has been able to growth steadily at 8-9% on average over 10-year periods.

Cash redistribution to shareholders is mixed with a good dividend but no buybacks. Going forward, BKE’s returns could be interesting:

            - 2.9% dividend yield (using about 30% of earnings)

            - A lower than historical performance growth of 7% - which using a ROE of 25% would         require another 30% of earnings

            - Buybacks or cash worth another 3-4% (40% of earnings * current earnings yield of            9.7%)

 

2- Balance Sheet Risk

Metric

Status

LT Debt / Equity

0! The company does not carry any debt

Current Ratio

3.6x, in line with past performance

Click to enlarge

BKE’s balance sheet is spotless with no debt and a current ratio which seems high (wasteful?) for the industry.  The high current ratio is in part driven by a high level of cash on the balance sheet, worth about 24% of total Assets.

 

3- Valuation Risk

Metric

Status

Cash Return

7.3%

P/E

10.4x, below the S&P500, the industry and BKE’s 5-year average of 13.9x

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BKE valuation seems attractive at this point, with a P/E of only 10.4x on a company which has been growing EPS year on year for almost 10 years!  The cash return is also attractive at 7.3% and could leave an investor with enough margin of safety to be comfortable with holding BKE’s stock for a while

 

Conclusion

I will for now hold on to my BKE shares and perform a full Company Analysis



Disclosure: Long BKE
Stocks: BKE