(Image: Zen Buddha Silence, by Marilyn Barbone)
January 10, 2021
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Lazydays Holdings, Inc. (LAZY): http://boolefund.com/lazydays-holdings-inc-lazy/
Karora Resources Inc. (KRRGF): http://boolefund.com/karora-resources-inc-krrgf/
Diamond S Shipping Inc. (DSSI): http://boolefund.com/diamond-s-shipping-inc-dssi/
DHI Group, Inc. (DHX): http://boolefund.com/dhi-group-inc-dhx/
Saga Communications Inc. (SGA): http://boolefund.com/saga-communications-inc-sga/
Northwest Pipe Co. (NWPX): http://boolefund.com/northwest-pipe-co-nwpx/
Smart Sand Inc. (SND): http://boolefund.com/smart-sand-inc-snd/
Terravest Industries Inc. (TVK.TO): http://boolefund.com/terravest-industries-inc-tvk/
LGL Group, Inc. (LGL): http://boolefund.com/lgl-group-inc-lgl/
G-III Apparel Group, Ltd. (GIII): http://boolefund.com/g-iii-apparel-group-ltd-giii/
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 Vera Bradley, Inc. (VRA). This is from the company’s website: “Vera Bradley is a leading designer of women’s handbags, luggage and travel items, fashion and home accessories, and unique gifts. The brand’s innovative designs, iconic patterns, and brilliant colors inspire and connect women unlike any other brand in the global marketplace.”
VRA has a market cap of $266 million, with $76.8 million in cash and $152.4 million in debt. The stock price is $7.98.
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First we screen for cheapness based on five metrics. Here are the numbers for Vera Bradley:
- EV/EBITDA = 5.03
- P/E = 8.29
- P/B = 0.87
- P/CF = 8.47
- P/S = 0.55
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/
Vera Bradley has a Piotroski F-Score of 7. (The best score possible is 9, while the worst score is 0.) This is good.
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). Vera Bradley has TL/TA of 38.3%, which is good.
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 Vera Bradley, insiders own 26% of the shares. This is excellent.
Shareholder yield is the dividend yield plus the buyback yield. At Vera Bradley, the dividend yield is zero while the buyback yield is about 2%. So shareholder yield is 2%.
Each component of the ranking has a different weight. The overall combined ranking of Vera Bradley 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 Vera Bradley’s most recent 10-Q (October 31, 2020): https://investors.verabradley.com/static-files/55473d48-d0ef-49d6-92a9-da1f69d50928
See also the following writeup: https://valueinvestorsclub.com/idea/VERA_BRADLEY_INC/1003334886
(You may have to become a guest member of www.valueinvestorsclub.com, but it is free to do so.)
Intrinsic value scenarios:
- Low case: EBITDA is $50 million. With an EV/EBITDA of 5, the stock would be worth $5.22 a share, which is 35% lower than today’s $7.98.
- Mid case: Normalized EBITDA is approximately $70 million. With an EV/EBITDA of 7, the stock would be worth $12.40 a share, which is 55% higher than today’s $7.98.
- High case: EBITDA may reach $90 million. With an EV/EBITDA of 8, the stock would be worth $19.29, which is over 140% higher than today’s $7.98.
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: email@example.com
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.