+ Watch BBBY
on My Watchlist
The Company is a chain of retail stores, sells an assortment of merchandise principally including domestics merchandise and home furnishings as well as food, giftware and health and beauty care items.
I am not a huge fan of retail stores in general but at current prices relative to the market and a company that is actively repurchasing shares at a good price I will go with this equity to beat the market over time. (at least until the price doesn't warrant buybacks anymore)Mega has a similar pitch that is pretty much spot on.
Value - I have a question about your comment "at least until the price doesn't warrant buybacks anymore." What's your personal take on what that price should be - not necessarily for BBBY, but for stocks in general? Is it simply intrinsic value? Do you look for consistent BPS growth? Or something else?For instance, if BBBY reached $90/share with a PE in the teens, would you like to stop seeing buybacks? Would you prefer they just hold the cash? I like management's policy of consistently buying back shares, year in and year out. Not everyone can be Buffett from a capital allocation perspective, and because of this I think discipline with capital deployment is necessary (just buyback shares every quarter, regardless).A personal holding I have in mind is BLL. The price isn't as attractive as it was last year, and consequently buybacks aren't creating the same value. But I really appreciate management's decision to consistently buybacks shares, rather than time their share price - that's one of the things attracted me to the stock in the first place.I'd just like to get your take on this, in general.
Great question.I take a look at many different factors. Intrinsic value is pry the most important. Now that brings a lot of things into play. You mention BBBY reaching $90 a share with PE in the teens. Now you might say a PE of 18 is too high. It might be and it might not. With the 10 year note running at a 2.56% yield I would say a 18 PE isn't that high. 18 inverse gives you a 5.55% yield on your money. Now if bond yields where yielding a lot higher % yield it may be a different story. Also like you said not everyone can be a Buffett from a capital allocation perspective. Also.... what is the companies choices with the free cash flow? Sitting on cash sucks in general. But you also don't want to spend your money unwisely. Berkshire has a advantage most companies don't have. Same goes for companies like MKL LUK. They buy different businesses and allocate capital accordingly to where they will get the most bang for their buck. BLL, BBBY don't have that luxury. Here are their options....Retain earnings (retained earnings are most important via they put the money to work which will add more value to the company)(If you read my pitch on retained earnings under my WFC pitch that will help)Stock buybacksDividendsIn your case of BLL. I follow BLL btw. Stock repurchases are sill warranted at this time IMO even though you are correct by stating the buybacks are not creating the same value as they would be at a lower price. To figure this I simply look at cash flows and balance sheet along with looking at 10 year treasury yields.
One more note. The investor in each equity can be the Buffett. If you think the company is overpriced then sell your shares. I always look at what else is out there and my other yield options. If you own a great company like BLL or WMT or WFC over time it gets harder and harder to part with your yields. For instance. If you purchased BLL around $42 a year or so ago and now this year your investment is yielding 8.95% on your original purchase assuming earnings power of $3.76 this year other stuff don't look as good especially considering the history and consistent earnings power of a great company.
With BBBY it would be a little different story. It isn't a BLL, it isn't a WMT, it isn't a WFC. I will look at the yields with a shorter leash. For BBBY to do well buybacks will have to be made at a great price and I will need the price to go lower to have good results. Some of the other GREAT companies don't need to repurchase shares at a great price because the intrinsic value of the company is higher than their current earnings yield will let on. I am guessing you think along the same lines. Hope this wasn't to all over the place and answered you ?'s.
Sorry I would like to got back to the specific BBBY thought of the equity trading at $90. I would sell BBBY at that price because there r current yields far better then that out there in terms of quality and predictability of future earnings. This differs from what the company should do with their cash though. Like I said their options are far more limited as opposed to mine allocating capital.
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