Just received a lesson from Geoff Gannon. It’s a great exercise to do.
If you were an investor in 1966 looking at these set of statements for an office equipment company, would you invest in it?
Net Cash: $18 mil
No of outstanding shares: 7,992,106
Businesses
- “Duplication of printed communications and business forms for accounting paperwork systems and high speed reproduction of output copy produced by electronic computers.”
- “Sales of machines, supplies, and services for general purpose data writing and mechanized repetitive writing.”
From the surface this looks like an SPH kind of situation. My initial thoughts were that with such steady earnings and net cash it is a good investment.
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Keith
Saturday 5th of October 2013
Hi Kyith, thanks for posting this question.
When investing in businesses, I would normally look ahead the next 15-20 years. To answer your question of whether I would invest in it, it would be a no for me, simply because its businesses aren't within my capability of understanding. The business of this company, providing “Duplication of printed communications and business forms for accounting paperwork systems and high speed reproduction of output copy produced by electronic computers.” and “Sales of machines, supplies, and services for general purpose data writing and mechanized repetitive writing.” falls out my of circle of competence. Without the confidence of how the outlook of the business will be like over the next 15-20 years (whether it can maintain its competitive advantage), I would avoid this investment.
Keith
Kyith
Saturday 5th of October 2013
well good that you raise your reservations but really this is abit of hindsight investing. assuming this is a recurring business with 20 year growth prospect would the same be true.
do note that this company declare bankrupt in 1984 or 86 so technicallly it fits what u say about looking ahead!
lewis
Thursday 3rd of October 2013
Er...what's the company??
Kyith
Thursday 3rd of October 2013
Addressograph-Multigraph
Freedom
Thursday 3rd of October 2013
Though the sales more than tripled, the ebit did not even double.
Quite a terrible business. My guess is no moat at all.
Depends on the payout ratio and price.
Kyith
Thursday 3rd of October 2013
hi Freedom, good of you to notice the narrowing of margins. i wouldnt call it terrible. its still profitable for 10 straight years!
it is facing competition at the tale end. and its competitor is IBM and Xerox.
is the payout that important? heard its dividend yield is 6%
donmihaihai
Wednesday 2nd of October 2013
Drizzt, Where is the article? I took his blind test few years back. Got it right and wrong. He cheated and pretty open about it but I never thought he will cheat that way. Anyway his test is interesting and this set of number is saying the company is changing.
Kyith
Thursday 3rd of October 2013
what do you mean he cheated. i think its very interesting. if he decides to do this weekly its good for us as an exercise to test our brains.
http://gannonandhoangoninvesting.com/blog/2013/10/2/blind-stock-valuation-podcast-1-addressograph-multigraph-1966
Edwin Ng
Wednesday 2nd of October 2013
Depending on price of security, at 1965, almost everything is cheap, likelihood of buying is high. Income stream is steady, but operational efficiency have been decreasing. If I am a activist shareholder, I'll take the company private and use it as operational milk cow after some restructuring for constant mini-acquisition.
Kyith
Thursday 3rd of October 2013
its PE have not been below 18 times. its interesting to note that for a profitable company this is where value investors like to hunt. it looks so much like short term misunderstood.