(Image: Zen Buddha Silence, by Marilyn Barbone)
December 6, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
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 Diamond S Shipping Inc. (DSSI). Diamond S Shipping provides seaborne transportation of crude oil, refined petroleum, and other products in the international shipping industry. As of September 30, 2020, through its wholly owned subsidiaries, DSSI owns and operates 64 tanker vessels: 13 Suezmax crude carriers, one Aframax crude carrier, and 50 MR product carriers. The company also controls and operates two Suezmax vessels through a joint venture.
DSSI has a market cap of $303.7 million, with $114.3 million in cash and $736.3 million in debt. The stock price is $7.51.
First we screen for cheapness based on five metrics. Here are the numbers for Diamond S Shipping:
- EV/EBITDA = 3.58
- P/E = 2.83
- P/B = 0.24
- P/CF = 1.41
- P/S = 0.44
(For the trailing twelve months, EBITDA is $260.1 million, earnings is $107.2 million, cash flow is $215.5 million, and sales is $692.2 million. These figures are high compared to history, but it’s likely that they will occur again in the next few years.)
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/
Diamond S Shipping has a Piotroski F-Score of 5. (The best score possible is 9, while the worst score is 0.) This is mediocre, but not bad.
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). Diamond S Shipping has TL/TA of 37.6%, 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 DSSI, the CEO owns about 2% of the shares. This is decent.
Shareholder yield is the dividend yield plus the buyback yield. At Diamond S Shipping, the dividend yield is zero while the buyback yield is negative 11.9%. This means the company issued shares rather than buying them back. (This is not ideal, but won’t matter if the company does well in the next few years.)
Each component of the ranking has a different weight. The overall combined ranking of Diamond S Shipping 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 Diamond S Shipping’s most recent investor presentation for Q3 2020: https://s2.q4cdn.com/950905705/files/doc_presentations/2020/Diamond-S-Shipping-Inc-Q3-2020-Earnings-Presentation.pdf
Also, check out the following write-up: https://valueinvestorsclub.com/idea/DIAMOND_S_SHIPPING_INC/5877749532#description
(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)
Intrinsic value scenarios:
- Low case: Book value per share is $30.92 a share. In the worst case, the company may be worth 0.3 times book value. That’s $9.28 per share, which is 23% higher than today’s $7.51.
- Mid case: DSSI is probably worth book value of $30.92 a share. That’s over 310% higher than today’s $7.51.
- High case: If conditions improve significantly on a sustained basis, DSSI may be worth 1.5 times book value. That’s $46.38, which is over 515% higher than today’s $7.51.
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.