OldSchoolValue (< 20)

One of the best retailers, if not THE best. HIBB

January 06, 2012 – Comments (0) | RELATED TICKERS: HIBB

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Have to say that this is one of the best small cap retail business.

Sports retail business just like Dicks, big 5 sports

Some highlights off the top of my head

Extroadinarily high ROE of 25% and above. Consistent as well.Good steady marginsGood FCF growthTight inventory controlStrong balance sheetNo accrual build upsNo debtGood growth in bad economies. Earnings revised up in 2011.

Strategic advantages

shadows WMT. Whereve WMT is, HIBB tries to open a store within the vacinity PROVIDED that the demographic is their targetwon't expand into bigger cities. Takes advantage of smaller population markets where bigger competitors wont do businesshas relationships with local schools to supply them equipment and gearcustomizes merchandise to match the target market. e.g. Shops in Alabama will have a lot of Alabama football team gear during football season while another store in texas takes advantage of the Texas rangers world series games.HIBB trains their employee to be sales professionals instead of just regular store helpers. They sell more technical sports gear which requires better explanations.

Valuation

Reverse valuation show that the current stock price is expecting about 15% growth from the company. Too high for me.Fair value is around current price of $40-50. Not much margin of safety.Currently trading at much higher multiples than competitors. This could easily revert to the mean as HIBB is operating at max margins at the moment.

Risks

HIBB purchases majority of products from Nike. If their relationship fails, no more products to sellRetail business could turn down any minuteCustomized products means that they could be missing or be slow to a bigger trendThey have 800 stores. How many smaller markets are there that HIBB can take control of?Centralized distribution strategy. If the warehouse gets hit by a hurricane, company will suffer.Retail business has a lot to do with management and experience. But HIBB has been doing this with conservative smart growth and store openings.

Others

Good company to work forNo complaints from previous employees other than the pay was low. (glassdoor.com)Joel Greenblatt has been a recent buyer (small  buyer)Insiders consistently selling at current prices. Sign that stock price is fairly valued?Executive chairman's salary and stock option is enormous.

Verdict

Time to start buying around $30 ~ $35, or lower if opportunity is given.