(Image: Zen Buddha Silence, by Marilyn Barbone)
October 18, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Hummingbird Resources Plc. (HUMRF): http://boolefund.com/hummingbird-resources-plc-humrf/
Micropac Industries, Inc. (MPAD): http://boolefund.com/micropac-industries-inc-mpad/
Barrett Business Services, Inc. (BBSI): http://boolefund.com/barrett-business-services-inc-bbsi/
Delta Apparel, Inc. (DLA): http://boolefund.com/delta-apparel-inc-dla/
AdvanSix, Inc. (ASIX): http://boolefund.com/advansix-inc-asix/
Universal Technical Institute (UTI): http://boolefund.com/universal-technical-institute-uti/
Burnham Holdings Inc (BURCA): http://boolefund.com/burnham-holdings-inc-burca/
Select Interior Concepts (SIC): http://boolefund.com/select-interior-concepts-sic/
Manitowoc (MTW): http://boolefund.com/manitowoc-mtw/
Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): http://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at G-III Apparel Group, Ltd. (GIII). Here’s a description of GIII from its most recent quarterly report (September 2020):
“The Company designs, sources, and markets an extensive range of apparel, including outerwear, dresses, sportswear, swimwear, women’s suits, and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories, and luggage. The Company also operates retail stores and licenses its proprietary brands for several product categories.”
GIII has a market cap of $673 million, with $252.8 million in cash and $640.7 million in debt (including operating leases) as of July 31, 2020. The stock price is $13.96.
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First we screen for cheapness based on five metrics. Here are the numbers for G-III Apparel Group:
- EV/EBITDA =3.29
- P/E = 10.17
- P/B = 0.55
- P/CF = 1.68
- P/S = 0.26
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/
G-III Apparel Group has a Piotroski F-Score of 6. (The best score possible is 9, while the worst score is 0.) This is OK.
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). GIII has TL/TA of 45.5%, which is decent.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At G-III Apparel Group, insider ownership is approximately 11%. (The CEO Morris Goldfarb owns 8.7%.) This is good.
Shareholder yield is the dividend yield plus the buyback yield. At GIII, dividend yield is zero. The buyback yield is 2%. Thus, shareholder yield is 2%.
Each component of the ranking has a different weight. The overall combined ranking of GIII places it in the top 50 stocks on our screen, or the top 2% of the more than two thousand companies we ranked.
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
See G-III Apparel Group’s most recent quarterly report (September 2020): http://ir.g-iii.com/static-files/fa86b53f-b15e-4e28-a8ce-498f1b5aa49d
Also, check out the following write-up: https://valueinvestorsclub.com/idea/G-III_APPAREL_GROUP_LTD/8646711273#description
(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)
Intrinsic value scenarios:
- Low case: EPS (earnings per share) may be $1.00. With a P/E of 10, the company would be worth $10 a share, which is 28% lower than today’s $13.96.
- Mid case: EPS (earnings per share) is likely to reach at least $4.00 once the global economy returns to normal (which is likely to happen within the next year or less). With a P/E of 14, GIII would be worth $56 a share, which is over 300% higher than today’s $13.96.
- High case: EPS (earnings per share) may reach at least $5.00 once the global economy returns to normal. With a P/E of 16, GIII would be worth $80 a share, which is over 435% higher than today’s $13.96.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.