(Image: Zen Buddha Silence, by Marilyn Barbone)
November 22, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
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 Saga Communications Inc. (SGA). Saga Communications is a radio broadcaster.
The company has a market cap of $127.6 million, with $48.3 million in cash and $16.6 million in debt. The stock price is $21.48.
First we screen for cheapness based on five metrics. Here are the numbers for Saga Communications:
- EV/EBITDA = 3.57
- P/E = 8.50
- P/B = 0.68
- P/CF = 5.10
- P/S = 1.06
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/
Saga Communications has a Piotroski F-Score of 6. (The best score possible is 9, while the worst score is 0.) This is decent.
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). Saga Communications has TL/TA of 22.6%, which is very 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 Saga Communications, there are 954,000 class B shares and 5.039 million class A shares. The CEO, Ed Christian, owns all of the class B shares, which means insider ownership is just over 15%. Each class B share is worth ten class A shares when it comes to voting, giving Christian full control of the company. Christian has a good long-term track record of building value.
Shareholder yield is the dividend yield plus the buyback yield. At Saga Communications, the dividend yield is 2.05% while the buyback yield is 0.5%. So the shareholder yield is 2.55%.
Each component of the ranking has a different weight. The overall combined ranking of Saga Communications 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 Saga Communications’ most recent quarterly report: http://d18rn0p25nwr6d.cloudfront.net/CIK-0000886136/1de3a355-3fb9-46c9-82c7-54b7f1dfafd0.pdf
Also, check out the following write-up: https://valueinvestorsclub.com/idea/SAGA_COMMUNICATIONS__-CL_A/2363353097
(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 $31.70 a share. This is over 45% higher than today’s $21.48.
- Mid case: Normalized EBITDA is approximately $32 million. With an EV/EBITDA of 8, the stock would be worth $49.55, which is 130% higher than today’s $21.48.
- High case: EBITDA may reach $35 million. With an EV/EBITDA of 10, the stock would be worth $65.38, which is over 200% higher than today’s $21.48.
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.