Friday, January 30, 2015

Stockdissector (Theoretical) Portfolio Update January 30, 2015

Wabtec-(NYSE: WAB)--Added on January 30, 2015
Price when added $83.45
S&P 500 when added 1,994.99
Wabtec's Price on 01/30/15 $83.45
S&P 500 Price on 01/30/15 1,994.99
Wabtec's Price Return 0% Vs. 0% for the S&P 500 since being added to the portfolio

The stock is even with the market
Stockdissector owns shares in this company


Back to the Stockdissector Portfolio

Stockdissector is NOT an investment advisor. This is for informational purposes only. This should not be construed as an investment advice and you should always consult your financial advisor for a second opinion.

Financial Thought of the Day January 30, 2015: Having an Emergency Fund –Reason #5

The boss is having financial difficulty and delays your paycheck by a week. Also, once they do issue a check it gets lost in the mail. But you don’t sweat it because you have money in the bank to pay the bills until things get sorted out.

Go to stockdissector.com

Thursday, January 29, 2015

Financial Thought of the Day January 29, 2015: Having an Emergency Fund—Reason #4

You are going to work and your transmission goes out. You get it to the car mechanic who tells you it’s going to cost you a great deal. You rest easy because you have more than enough money to cover the repair cost and car rental to get you to work so you won’t lose your job.

Go to stockdissector

Wednesday, January 28, 2015

Financial Thought of the Day January 28, 2015: Having an Emergency Fund – Reason #3

Your layoff caused you to lose your health benefits. The money you saved in the bank will help pay for a medical card.

Go to stockdissector.com

Tuesday, January 27, 2015

Financial Thought of the Day January 27, 2015: Having an Emergency Fund—Reason #2

Everything thing may be going fine in your job. Then all of the sudden the boss is calling you into his/her office and saying sorry about your luck but we are having a layoff and your one of the ones getting laid off. Having an emergency fund provides options beyond unemployment benefits.

Go to stockdissector.com

Monday, January 26, 2015

Financial Thought of the Day January 26, 2015: Having an Emergency Fund--Reason #1

The way most health insurance companies work these days is that you have to at least foot part of your healthcare costs via a deductible, co-pays, and the portions that they don’t cover. It pays to have money set aside for surgeries and sudden illness.

Go to stockdissector.com

Friday, January 23, 2015

Financial Thought of the Day January 23, 2015: Calculating Operating Profit

Operating profit = [Revenue-cost of goods sold-operating expenses]

Operating profit deducts cost of goods sold and expenses pertaining to the normal operations of a business.

Thursday, January 22, 2015

Financial Thought of the Day January 22, 2015: Calculating Gross Profit


Gross Profit = [Revenue – Cost of Goods Sold]
This is generally profit after cost of inventory.

Wednesday, January 21, 2015

Tuesday, January 20, 2015

Financial Thought of the Day January 20, 2015: Calculating P/E Ratio

P/E = [Market Price Per Share/EPS Per Share]

This is a highly quoted metric in the financial media.

Friday, January 16, 2015

Financial Thought of the Day January 16, 2015: Calculating Free Cash Flow

Free Cash Flow = [Operating cash flow-capital expenditures + sale of plant property and equipment]

Thursday, January 15, 2015

Financial Thought of the Day January 15, 2015: Calculating Dividend Yield

Dividend yield can be computed with the following formula—[Annual dividend amount/market price per share] x 100.

Wednesday, January 14, 2015

Financial Thought of the Day January 14, 2015: Breaking Down Your Expenses

One way to know if you are living within your means is to take the total amount of expenses each year and break it down on a paycheck to paycheck basis. If your expenses exceed your paycheck then you aren’t living within your means.

Tuesday, January 13, 2015

Financial Thought of the Day January 13, 2015: Living Paycheck to Paycheck

Living payday to payday means you are a slave to your paycheck cycle. The only way you can spend beyond your paycheck is to go in debt which adds interests cost or ask for money from friends and relatives which puts a strain on your relationship with them. It’s like being an indentured servant.

Monday, January 12, 2015

Financial Thought of the Day January 12, 2015: Thinking Like a Publicly Traded Business Owner

If you think more like a business owner instead of owning shares of paper you start to think more strategically. You begin to contemplate who your competitors are and whether or not your company sells a needed and/or unique product and less about analyst expectations, P/E ratios, and news headlines.

Friday, January 9, 2015

Financial Thought of the Day January 9, 2015: Long-Term Debt to Equity Ratio

Long-term debt to equity ratio = [Long-term debt/stockholder’s equity] x 100.

I use this metric often in my writings and prefer that a company’s long-term debt lies at 50% or less of stockholder’s equity before investing.

Thursday, January 8, 2015

Financial Thought of the Day January 8, 2015: An Ode to Cash

Cash may not work that hard for you as an investment but it can still perform many important functions. In the world of personal finance, it can provide a cash cushion for emergencies and a chance to take advantage of investment opportunities like cheaper stock prices. In the corporate world it can provide the company a chance to stay afloat during difficult times and provide them with the ability to make strategic acquisitions without relying on outside financing.

Wednesday, January 7, 2015

Financial Thought Of The Day January 7, 2015: Free Cash Flow To Stockholder’s Equity

One on the most used metrics in the financial world when gauging profitability relative to the capital base is return on equity defined by variations of the following formula: [Net Income/Stockholder’s equity] x 100. A business owner would want to know how much a capital base can generate free cash flow which would be defined by the following formula: [Free cash flow/Stockholder’s Equity] x 100.

Tuesday, January 6, 2015

Here’s How Mattress Firm Is Doing So Far This Year

On Dec. 3, mattress and accessory retailer Mattress Firm (NASDAQ: MFRM) came out with its Q3 2014 quarterly statement. The company performed well on the top line front but not so much on the profitability front. Let’s see what’s going on with this company.
Robust top line gains
Mattress Firm’s year-to-date revenue gained $303 million dollars representing a 33.5% year-over-year increase in revenue overall. Mattress’s Firm’s entire product and service portfolio saw gains in revenue (see table below). Conventional mattresses made up the largest percentage (48%) of overall gains with this segment increasing $145.8 million or 35% year-over-year.
Sales by Product

YTD 10/28/14
YTD 10/29/13
Gain
Gain as % of Total
YOY Gain
Conventional Mattresses
$567.6
$421.8
$145.8
48.1%
34.6%
Specialty Mattresses
$525.7
$403.5
$122.2
40.3%
30.3%
Furniture and accessories
$91.4
$62.6
$28.8
9.5%
46.0%
Delivery service revenue
$23.0
$16.8
$6.2
2.0%
36.9%
Total
$1,207.7
$904.7
$303.0
100.0%
33.5%
Source: SEC filings and author’s calculations
Organic sources contributed 63.1% to Mattress Firm’s overall gains meaning that the company can grow its top line by bringing customers through the door rather than by simply buying other companies (see table below). Established stores contributed a respectable 22% to the overall gain in Mattress Firm’s year-to-date revenue while expansion contributed another 41%. Acquisitions, however, did account for the remaining 42% of year-to-date revenue gains.
Type of Gain
Change in sales
% of Total Gain
Comparable store sales
$67.5
22.3%
New stores
$123.7
40.8%
Acquired stores
$126.1
41.6%
Closed stores
-$14.3
-4.7%
Total YTD YOY Gain in Sales
$303.0
100.0%
Source SEC filings and author’s calculations
Net income declined
Mattress Firm’s net income declined 15% year-over-year. Relatively higher general and administrative expenses tied to acquisitions contributed heavily to the decline in net income. Increased interest expense stemming from accumulation of long-term debt also contributed to net income decline.
Free cash flow declined
Mattress Firm’s year-to-date free cash flow also declined 17% vs. the same time last year. Capital expenditures increased 33% due to increased opening of new stores relative to last year. Hopefully, the investment in expansion will pay off in the long run.
How does this fit into the overall picture?
Mattress Firm has grown its revenue, net income, and free cash flow a healthy 207%, 13,000%, and 184% respectively and translating into a total return of 163% vs. 80% for the total return S&P 500 according to Y Charts. The company has expanded at a fast pace going from 487 locations in 2009 to 1,986 locations in the most recent quarter. It should be noted that comparable store sales have declined steadily in the past three years. Hopefully, this trend will reverse itself this year.
Lousy balance sheet
Mattress Firm possesses a lousy balance sheet. Its $5 million cash balance equates to a mere 1% of stockholder’s equity, way below my personal threshold of 20%. Companies that harbor plenty of cash can get themselves through tough times, self-finance acquisitions and invest in product innovation.
Mattress Firm also expanded its long-term debt to finance acquisitions. Long-term debt increased to $750 million vs. $216 million at the start of the year, expanding its long-term debt to equity ratio to 178% vs. 66% which vastly exceeds my personal threshold of 50%. Long-term debt creates interest expense which serves as drag on profitability. So far this year, Mattress Firm’s operating income exceeds interest expense by seven times vs. 10 times the same time last year. The rule of thumb for safety lies at five times or more.
Looking ahead
Mattress Firm’s massive expansion of long-term debt gives indication that the company may be expanding too fast. Also, the company trades at a high P/E ratio of 43 vs. 19 for the S&P 500, according to Morningstar. A market correction could severely impact this company’s stock price. Management lowered its guidance and expects earnings per share to be between $1.44 and $1.50 for its FY 2015. If the companies misses that estimate and clocks in at say $1.43 per share, assigning a normal multiple of 23, puts the company stock price at $32.89 per share which represents a 42% downside from its current price. Even at $1.50 a multiple of 23 would translate into a share price of $34.50, or a 39% downside.

Investors may want to consider more solid companies such as Union Pacific which offers a more reasonable valuation of 22.

DISCLOSURE: STOCKDISSECTOR (William Bias) owns shares of Union Pacific and will not trade the stock for three market days.

Financial Thought of the Day January 6, 2015: Saving Money

Be sure to build a good emergency fund that can pay your personal expenses for at least 1-2 years. In this day and age of economic volatility it pays to have a decent cash stash.

Monday, January 5, 2015

Financial Thought of the Day January 5, 2015: A Dollar A Day….

Imagine, if you set aside just $1 per day that is $365 per year. This represents a good way to save for Christmas shopping or building a small emergency fund.

Friday, January 2, 2015

Financial Thought of the Day January 2, 2015: Financial Planning Should Be More Than a New Year’s Resolution

At this time of the year, people are making New Year’s resolutions such as losing weight and saving money. Saving money should be a part of your agenda all the time not just at the start of the New Year.