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Report example for Pantry,Inc. (10Jan2010)
Technical Analysis
Daily Chart shows quotes near the low of the last 18 mounths.
Figure has the opportunity to form a double bottom in next days.
Volume are reducing while the increasing Money Flow Index could be
seen as a major interest from investors.
PTRY Stock Evaluation
There has been almost no net change in share price and also earnings estimates have not been amended or restated in last week. I will continue to track closely the current ratios and metrics for PTRY and evaluate them against historical averages . This framework will give me the tools necessary to understand when a downgrade from my Greatly Undervalued rating will be most timely.
Summary
I have found a lot to like about this stock from a fundamental perspective; however, we are a little bit concerned about how much its sector is up in the last twelve months, 32.5%. So, we will continue to monitor this and other members of the Consumer Services sector for a sign of being overbought. Right now, I are going to stick with my Greatly Undervalued rating until we see a catalyst for change.
The price change of 0.67% since 12/26/2009 has little impact on my final outlook for PTRY.
Also, there have been no meaningful adjustments in earnings expectations to report in the last week.
PTRY Revenue
For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. When looking at PTRY , I can see that my weighted average historical high and low Price to Sales per share ratios over the last 10 years are 0.18x and 0.08x respectively.
Utilizing this range I can see that PTRY’s current Price to Sales per share ratio of 0.05x is significantly below its average levels historically. In fact, with a current price around $13.60, PTRY is a full 63% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for my outlook for PTRY.
PTRY Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. PTRY is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years I can get a good understanding of what investors have grown to expect from PTRY. For example, PTRY's Cash Earnings ratio per share has fluctuated between 3.27 and 7.97 over this historical timeframe.
So with PTRY's current price and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, PTRY is 68% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with PTRY.
PTRY Dividends
I believe dividends provide a useful measure of a company's inherent expectations. Although they may currently pay a dividend, my data source has no historical record of it for PTRY. Since I cannot apply historical trend analysis to dividends for PTRY I have a neutral score for the dividend portion of our analysis.
Evaluating Management
In evaluating management, I focus on three key measures, which combined,
produce Return on Equity (ROE). These measures are the investing of company
assets, the use of leverage, and the day to day operation of the business. Below
I summarize where each of these measures are currently compared to their
average levels over the last five years. This gives a good indication of the
strengths and weaknesses of each area.
Asset Turnover Ratio
In analyzing the first area for evaluating management I need to look at whether PTRY’s management is efficiently investing company assets. For this purpose I look at calculating the Asset Turnover Ratio (ATO) which consists of sales divided by assets. At a rate of 2.97x at their last reporting, this measure of management’s investing ability is significantly below its 5 year average by 15%.
Leverage
The second way to evaluate management is to look at their financing activities, which shows whether the management of PTRY is being effective in their use of leverage. For this I utilize the Assets to Equity Ratio. PTRY’s last reported Assets to Equity Ratio was 4.72x which is below its historical average over the last five years by 10%. To the extent that ROE is not significantly diminished, reduced leverage can be seen as an improvement in shareholder safety.
Profit Margin
The third measure of management effectiveness is profit margin, which for PTRY is currently above its 5 year average. Profit Margin (MGN) is the most visible as well as most popular measure of management efficacy and is computed by dividing earnings by sales. With a last reported Profit Margin of 0.93%, PTRY is above it’s historical average by 3.6%
.
Notes for Management
While each of these measures is useful by themselves, the combination (i.e. ROE) is the ultimate indicator of management effectiveness for PTRY. Most firms generate an after-tax ROE of somewhere between 10% and 20% with an average of about 15% per year. In the case of PTRY, at its last reporting, the ROE of 13.00% was moderately below the average but does not cause us concern at this time.