Earlier this month McRae announced great results. The company had earnings of $24.9M
and earnings of $1.9M or $0.87 per share. This is 24% improvement in revenue
and a 38% improvement in earnings over the same quarter last year.
I was very happy to see that the biggest contributor to the
sales increase was from their consumer products, and not their work (military) products.
The reason for this increase was mostly due to a better economic
environment. With all indications from recent economic data pointing to a
healthy economy, I expect this earnings trend to continue.
At this rate of earnings improvement, this year earnings will be $3.13 per share
which would give the company a forward P/E of about 6!
I feel that McRea is a value stock with training wheels.
No large investor can be bothered to invest in this company because it is so small
it cannot make a difference in any large portfolio.
Only a little guy can feasibly invest in it. In addition,
their financials are so plain and simple that any person
can grasp it. And their business is
also simple, it is just boots that you and I could wear.
I am contemplating adding to my position at the current
price of $18.30. However, that is simpler said than done.
McRea is so lightly traded that the spread between bid
and ask can be around close to 10% of the stock's value!
So if it trades at $18.30, I would be lucky if I can buy
below $19. So, I think I will be paying attention to McRea
looking for any sign of a dip in price to add to my position.
Nice posts on McRae. Thanks for sharing. Where can one obtain McRae financials?
ReplyDeleteHere in their press section under investors:
ReplyDeletehttp://www.mcraeindustries.com/press.php
Thanks. I was curious about your valuation of McRae.
ReplyDeleteI reviewed the historical financials and agree that the company has consistently delivered a nice ROE.
I am a striving asset-based value investor, and looked at the company's fundamental valuation. I estimate liquidation value (Cash + 50% Working Capital + 0% PP&E) to be around $10.6 per share; and I estimate book value per share to be around $20.3 per share. As a result, I wasn't as convinced McRae represents a compelling value investment opportunity (i.e., at least 2/3 to NCAV). It looks to be fairly valued in the market on an asset basis.
I'm curious about your analysis.
Well, I think all metrics complement judgement when selecting stocks. If I saw a stock trading at 2/3 NCAV I'd be very suspicious. I'd want to know the story behind the valuation.
ReplyDeleteMost normal quality stocks don't trade anywhere close to NCAV. But McRea is an exception, it is a growing business and FCF is 10% of market cap.
At current prices, I would put in 10% of my net worth in this stock BUT I am relatively new to under-reported small caps and I am a bit afraid of some shenanigans - Not that I have any evidence of any shenanigans!
Good luck!