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
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 |
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
Status | |
LT Debt / Equity | 0! The company does not carry any debt |
Current Ratio | 3.6x, in line with past performance |
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
Status | |
Cash Return | 7.3% |
P/E | 10.4x, below the S&P500, the industry and BKE’s 5-year average of 13.9x |
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
