Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

ETSY Stock Study (8-4-23)

Posted by on September 8, 2023 at 06:58 | Last modified: August 4, 2023 14:45

I recently did a stock study on Etsy, Inc. (ETSY) with a closing price of $82.92. The previous study is here.

M* writes:

     > Etsy operates a top-10 e-commerce marketplace operator in the U.S.
     > and the U.K., with sizable operations in Germany, France, Australia,
     > and Canada. The firm dominates an interesting niche, connecting
     > buyers and sellers through its online market to exchange vintage
     > and craft goods. With $13.3 billion in 2022 consolidated gross
     > merchandise volume, the firm has cemented itself as one of the
     > largest players in a quickly growing space, generating revenue
     > from listing fees, commissions on sold items, advertising services,
     > payment processing, and shipping labels. As of the end of 2022, the
     > firm connected more than 95 million buyers and 7.5 million sellers
     > on its marketplace properties: Etsy, Reverb (musical equipment),
     > Elo7 (crafts in Brazil), and Depop (clothing resale).

This medium-size company has grown sales at an annualized rate of 40.8% over the past decade.

EPS is a bit more complicated. 2015 is the first year as a publicly-traded company. I am excluding negative/fractional EPS in ’13-’16 [otherwise resulting in an inflated growth rate] to start with $0.68/share in ’17. The company takes a goodwill impairment charge of $1.0 billion in ’22 due to Depop and Elo7 acquisitions. This slashes EPS from $4.61/share (“normalized” per CFRA) to -$5.48, which precludes future growth rate projections. Effective immediately, I am overwriting the data point rather than excluding it. I consider this to be fair especially because CFRA seems neutral (at best) on the stock. The result is a 57.9% EPS growth rate since ’17.

For ’17-’22, [sales and EPS] lines are mostly up and narrowing despite an EPS dip in ’18.

PTPM is above the industry but below peer averages while increasing from 7.3% in ’17 to 20.3% in ’21 with a last-5-year mean (excluding ’22) of 15.1%. ROE is above peer and industry averages while increasing from 23.8% in ’17 to 80.9% in ’22 with a last-5-year mean (excluding ’22) of 43.3%.

Debt-to-Capital has been above peer and industry averages since ’19 with a last-5-year mean of 76.5%. While the number exceeds 100% in ’22, Value Line (giving a B+ rating for Financial Strength) is not concerned:

     > Although debt represented over 100% of capital at the end of 2022,
     > cash and short-term investments totaled $1.2 billion and the
     > company has only modest debt due over the next five years.
     > Additional funds can be sourced from the company’s $200 million
     > undrawn revolver and $29.1 million in long-term investments that
     > can be liquidated on short notice.

M* gives a “Standard” rating for Capital Allocation and is not concerned about debt either:

     > With our forecast for just 0.8 times average net leverage over the next
     > five years (net debt/adjusted EBITDA), a paucity of near-term debt
     > maturities, and a highly cash generative mode… balance sheet risk
     > appears minimal for the marketplace operator. We believe that Etsy
     > should encounter no difficulties in funding its investments in headcount
     > and platform development with internally generated funds, while
     > retaining substantial flexibility to invest in brand marketing and
     > strategic acquisitions. With no principal maturities until 2026, we
     > view Etsy’s balance sheet health as strong, despite the firm carrying
     > $2.3 billion in gross debt as of the end of the first quarter of 2023.

Quick Ratio is 2.6 and—nota bene—M* rates the company “Wide” for Economic Moat.

With regard to sales growth:

I am forecasting below the range at 6.0% per year.

With regard to EPS growth:

How YF comes up with 144% for ’23 with ’22 being a negative number is [unknown to me and] a moot point.

I am forecasting below the long-term-estimate range (mean of six: 12.5%) at 6.0% per year. My initial value will be CFRA’s ’22 normalized EPS of $4.61/share.

My Forecast High P/E is 26.0. Since ’17, high P/E ranges from 32.1 in ’17 to 96.5 in ’19 with a last-5-year mean (’22 is NMF) of 89.1. The last-5-year-mean average P/E is 59.6. I am forecasting below the range.

My Forecast Low P/E is 14.0. Since ’17, low P/E ranges from 11.1 in ’20 to 52.3 in ’19 with a last-5-year mean (’22 is NMF) of 30.1. The 5-year median is 27.4 (’18). I am forecasting toward the bottom of the range [’20 and ’17 (13.8) are lower].

My Low Stock Price Forecast (LSPF) of $64.50 is default based on $4.61/share initial value. This is 22.2% less than the previous closing price, 19.8% less than the 52-week low, and 3.7% less than the ’22 low.

These inputs land ETSY in the BUY zone with a U/D ratio of 4.2. Total Annualized Return (TAR) is 14.1%.

PAR (using Forecast Average—not High—P/E) is 8.3%, which is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 60 studies over the past 90 days (my study and 20 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 16.0%, 13.5%, 50.0, and 25.8, respectively. I am lower across the board. Value Line projects an average annual P/E of 35.0, which is lower than MS (37.9) and much higher than mine (20.0).

MS high / low EPS are $9.95 / -$5.40 vs. my $6.17 / $4.61 (per share). My high EPS is lower due to a lower growth rate. I think MS low EPS is unreasonably based on a one-time impairment charge. Furthermore, how are they calculating [percentage] projections off a negative base?

MS mean LSPF of -$10.50 is an invalid consequence of that negative base. The median of $35.00 is 45.7% less than mine.

Despite this apparent craziness, MS TAR of 39.3% is much higher than mine, which falls short of my 15.0% target.

MOS in the current study seems to be robust.

I track different valuation metrics. PEG is significantly overvalued at 5.5 per Zacks and 2.2 per my projected [forward] P/E. Relative Value [(current P/E) / 5-year-mean average P/E] is significantly undervalued at 0.30. Kim Butcher’s “quick and dirty DCF” prices the stock at 30.0 * [$5.75 – ($0.00 + $0.10)] = $169.50 thereby implying the stock to be 51.0% undervalued.

Despite being a BUY under $91/share, I would look to acquire shares under $85 to qualify TAR. The stock been quite volatile, which suggests likeliness to trade up and down and hit this level. It’s also there right now with last night’s close.

Categories: BetterInvesting® | Comments (0) | Permalink

QLYS Stock Study (7-10-23)

Posted by on September 7, 2023 at 06:43 | Last modified: July 10, 2023 20:09

I recently did a stock study on Qualys Inc. (QLYS) with a closing price of $129.20. The original study is here.

M* writes:

     > Qualys Inc. is a cloud security and compliance solutions
     > provider that helps businesses identify and manage their
     > security risks and compliance requirements. The California-
     > based company has more than 10,000 customers worldwide,
     > the majority of which are small- and medium-sized businesses.

Over the past decade, this small-size company has grown sales and EPS at 17.8% and 16.3% per year [fractional EPS years of ’13, ’15, and ’16 excluded that would otherwise inflate rate to 38.6%], respectively. Lines are mostly up, straight, and parallel except for EPS spike in ’14 along with EPS dips in ’15 and ’21. PTPM generally trails the industry and leads peer averages by rallying from 2.0% in ’13 to 27.3% in ’22 with a last-5-year mean of 24.4%.

Also over the past decade, ROE trails the industry and leads peer averages by rallying from 1.6% in ’13 to 28.8% in ’22 with a last-5-year mean of 20.2%. Having no long-term debt, Debt-to-Capital has been much lower than peer and industry averages with a last-5-year mean of 9.5% (uncapitalized leases).

Quick Ratio is 1.23. M* gives a Standard rating for Capital Allocation while Value Line assigns a B+ for Financial Strength.

With regard to sales growth:

I am forecasting conservatively below the range at 9.0%.

With regard to EPS growth:

I am forecasting near the bottom of the long-term-estimate range (mean of four: 10.1%) at 6.0%. I will use ’22 EPS of $2.74/share as the initial value rather than ’23 Q1 $2.89 (annualized).

I don’t give much weight to the shorter-term estimates but I do find CFRA’s upside outliers to be notable especially since they report 19 analysts. This is a big spike that would probably command an outsized P/E.

My Forecast High P/E is 50.0. The lowest high P/E over the last decade is 50.3 in ’14. The last-5-year mean is 65.9, and the last-5-year-mean average P/E is 53.1. I am forecasting just under the latter, which is below the entire last-decade range.

The top of my comfort zone is around 35, but that results in a future high price only a few points higher than the previous close. Being a small company, perhaps Qualys still has years of “outlandish” P/E remaining. I will have to watch this closely.

My Forecast Low P/E is 31.0. The lowest low P/E over the past decade is 22.2 in ’14. The last-5-year average and last-10-year median is 40.3. I am forecasting near the bottom of the range [only ’14 and ’20 (28.3) are lower].

My Low Stock Price Forecast (LSPF) is the default $84.90 based on $2.74/share initial value. This is 34.3% less than the previous close, 16.0% less than the 52-week low, and 6.0% less than the 2021 low.

These inputs land QLYS in the HOLD zone with a U/D ratio of 1.5. Total Annualized Return (TAR) is 8.0%.

PAR (using Forecast Average—not High—P/E) of 3.6% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 188 studies over the past 90 days (39 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 13.0%, 11.4%, 54.1, and 35.9, respectively. I am lower across the board.

MS high/low EPS is $4.94/$2.66 vs. my $3.67/$2.74 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $90.30 implies a Forecast Low P/E of 33.9 vs. the above-mentioned 35.9. MS LSPF is 5.4% lower than the default value of $2.66/share * 35.9 = $95.49, which results in more conservative zoning. MS LSPF remains 6.4% greater than mine.

Although Value Line does not provide a future average annual P/E projection, its high EPS of $4.50/share is much greater than mine. Based on this and MS comparisons, I deem MOS in the current study to be robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. The former is 41 / 6 = 6.8 (substantially overvalued) while the latter is 0.81 (undervalued).

I am also starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 35 * [$6.00 – ($0.00 + $0.75)] = $183.75 (i.e. stock undervalued by 30.0%).

I would look to re-evaluate QLYS under $109/share.

Categories: BetterInvesting® | Comments (0) | Permalink

LPLA Stock Study (7-10-23)

Posted by on September 5, 2023 at 06:12 | Last modified: July 10, 2023 13:50

I recently did a stock study on LPL Financial Holdings Inc. (LPLA) with a closing price of $224.82.

Value Line writes:

     > LPL Financial Holdings, Inc. is the nation’s largest independent
     > broker-dealer, a custodian for registered investment advisors,
     > and an independent consultant to retirement plans. It provides
     > an integrated platform of brokerage and investment advisory
     > services to nearly 20,000 independent financial advisors and
     > professionals at approximately 800 financial institutions and
     > approximately 500 registered investment advisers.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 10.7% and 23.2%. Lines are mostly up, straight, and narrowing except for sales dips in ’16 and ’20 and EPS dips in ’15, ’20, and ’21. PTPM leads peer and industry averages while trending higher in recent years from 25.0% in ’13 to 36.3% in ’22 with a last-5-year mean of 32.4%.

Over the past decade, ROE also leads peer and industry averages while going from 16.1% in ’13 to 41.2% in ’22 with a last-5-year mean of 40.4%. The trifecta cannot quite be completed as Debt-to-Capital is also higher than peer and industry averages despite trending down over the last five years with a mean of 66.5%.

Value Line reports Interest Coverage at 7.0, Current Ratio of 2.0, and a Financial Strength rating of B+. M* gives a Standard rating for Capital Allocation.

With regard to sales growth:

I am forecasting at the bottom of the range: 8.0%.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of six: 17.5%) at 13.0%. I will use ’22 EPS of $10.40/share as the initial value rather than ’23 Q1 EPS of $13.02 (annualized).

My Forecast High P/E is 16.0. Over the past decade, high P/E has ranged from 14.3 in ’19 to 32.3 in ’14 with a last-5-year mean of 21.0. The last-10-year median is 24.3 and the last-5-year-mean average P/E is 16.2. I am forecasting just below the latter [only ’19 and ’18 (15.1) are lower].

My Forecast Low P/E is 13.0. Over the past decade, low P/E has ranged from 5.5 in ’20 to 21.9 in ’14 with a last-5-year mean of 11.4. The last-10-year median is 13.6. I am forecasting just below the latter.

My Low Stock Price Forecast (LSPF) is the default $136.20 based on $10.40/share initial value. This is 39.9% less than the previous closing price and 18.0% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 9.6% in ’22 to 57.5% in ’15 with a last-5-year mean of 16.0%. I am forecasting below the range at 9.0%.

These inputs land LPLA in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 7.0%.

PAR (using Forecast Average—not High—P/E) of 4.9% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 13 studies over the past 90 days (my study and eight outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 10.7%, 12.9%, 19.8, 11.4, and 16.0% respectively. My EPS growth rate and Forecast Low P/E are higher, but 13 studies is too small a sample size for a valid comparison. Value Line projects an average annual P/E of 20.0, which is higher than MS (15.6) and mine (14.5).

MS high/low EPS is $21.74/$9.67 vs. my $19.16/$10.40 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $118.60 implies a Forecast Low P/E of 12.3 vs. 11.4 (see above). Although MS LSPF is 7.6% higher than the default value of $9.67/share * 11.4 = $110.23, being ~50% lower than the previous close is quite sufficient. It’s also 12.3% lower than mine. This is unusual but again, I can’t draw valid conclusions from such a small sample size. MS LSPF includes five studies under $110—the lowest of which are $69.00 and $39.70. One could argue all five of these as unreasonably low.

Based on my conservative inputs and Value Line’s future average annual P/E, I think MOS in the current study is moderate.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Zacks reports PEG of 0.66, which is the lowest I’ve seen so far (anything under 1.00 is generally regarded as undervalued). Relative Value (M* data), however, is just slightly overvalued at 1.08.

I would look to re-evaluate LPLA under $178/share.

Categories: BetterInvesting® | Comments (0) | Permalink

PYPL Stock Study (8-1-23)

Posted by on September 2, 2023 at 06:30 | Last modified: August 1, 2023 10:15

I recently did a stock study on PayPal Holdings Inc. (PYPL) with a closing price of $75.82.

Value Line writes:

     > PayPal Holdings, Inc. operates a technology platform that
     > enables digital and mobile payments by consumers and merchants
     > throughout the world. It offers a wide range of payment
     > solutions under the brands: PayPal, PayPal Credit, Venmo, Xoom,
     > Paydiant, and Braintree. Has more than 435 million active
     > users. In 2022, approximately 22.3 billion transactions were
     > completed on its platform. From 2002 to July 2015, PayPal was
     > a wholly-owned subsidiary of eBay.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 17.5% and 22.8%, respectively. Lines are mostly up, straight, and parallel except for EPS dips in ’14, ’21, and ’22. PTPM is below peer and industry averages while going from 16.1% in ’13 to 12.2% in ’22 with a last-5-year mean of 16.9%.

Since 2015, ROE trails peer and industry averages by going from 9.3% in ’15 to 11.7% in ’22 with a last-5-year mean of 16.2%. Debt-to-Capital is also less by going from 17.9% in ’13 to 33.9% in ’22 with a last-5-year mean of 25.7%.

M* gives a “Standard” rating for Capital Allocation while Value Line gives an A grade for Financial Strength. Interest Coverage is 12.5 and Quick Ratio is 1.24.

With regard to sales growth:

I am forecasting below both long-term estimates at 5.0%.

With regard to EPS growth:

My 12.0% forecast is at the bottom of the long-term-estimate range (mean of six: 18.3%). I will use ’22 EPS of $2.09/share as the initial value rather than 2023 Q1 EPS of $2.36 (annualized).

My Forecast High P/E is 38.0. Since 2015, high P/E increases from 42.5 in ’15 to 93.8 in ’22 with a last-5-year mean of 72.9. I am forecasting below the entire range. The last-5-year-mean average P/E is 55.1.

My Forecast Low P/E is 26.0. Since 2015, low P/E ranges from 23.2 in ’20 to 50.9 in ’21 with a last-5-year mean of 37.3. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) of $54.30 is the default based on initial value of $2.09/share. This is 28.4% less than the previous close and 8.0% less than the 52-week low.

These inputs land PYPL in the HOLD zone [threshold] with a U/D ratio of 3.0. Total Annualized Return (TAR) is 13.0%.

PAR (using Forecast Average—not High—P/E) is 9.2%, which is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 312 studies done in the past 90 days (my study and 104 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 14.6%, 43.7, and 29.2, respectively. I am lower across the board. Value Line projects a future average annual P/E of 35.0, which is lower than MS (36.5) and higher than mine (32.0).

MS high / low EPS are $4.54 / $2.30 vs. my $3.68 / $2.09 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $50.60 implies a Forecast Low P/E of 25.7 vs. the above-stated 29.2. MS LSPF is 12.2% less than the default $2.30/share * 29.2 = $67.16, which results in more conservative zoning. MS LSPF remains 8.7% greater than mine.

MOS backing the current study seems robust. My TAR [at least 15.0% preferred] is much less than MS 24.1%.

I track a few different valuation metrics. PEG per Zacks is undervalued at 0.87 but overvalued at 2.4 per my forward P/E. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.73. Kim Butcher’s “quick and dirty DCF” prices the stock at 28.0 * [$7.40 – ($0.00 + $1.35)] = $169.40 thereby suggesting the stock to be undervalued by 55.0%.

I would look to BUY the stock under $72/share in hopes of qualifying TAR.

Categories: BetterInvesting® | Comments (0) | Permalink

MED Stock Study (7-10-23)

Posted by on September 1, 2023 at 06:28 | Last modified: July 10, 2023 11:00

I recently did a stock study on Medifast, Inc. (MED) with a closing price of $92.12. The original study is here.

M* writes:

     > Medifast Inc is a US-based company that produces, distributes
     > and sells products concerning weight loss, weight management,
     > and healthy living. The company generates its revenue from
     > point of sale transactions executed over an e-commerce platform
     > for weight loss, weight management, and other consumable
     > health and nutritional products.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 23.5% and 32.4%, respectively. Lines are mostly up and parallel except for a 2-3-year dip between ’14 and ’17 and EPS in ’22. PTPM just beats the industry average while trailing peers by increasing from 9.6% in ’13 to 11.5% in ’22 with a last-5-year mean of 13.4%.

Over the past decade, ROE leads peer and industry averages by increasing from 20.4% in ’13 to an eye-popping 92.0% in ’22 with a last-5-year mean of 72.8%. Zero long-term debt makes this even more impressive. Debt-to-Capital [as uncapitalized leases] over the last five years averages 9.3%, which is far below peer and industry averages. Current Ratio is 1.75, Quick Ratio is 0.94, and Value Line’s Financial Strength rating is A.

With regard to sales growth:

I am forecasting just below the only long-term estimate available at -1.0%.

With regard to EPS growth:

This is about as scant as analyst coverage can be, which makes a long-term forecast exceedingly difficult. I basically have 20.0% and -4.7%. I will use the latter to calculate low EPS ($10.01/share in five years) and 0% as an optimistic forecast to get high EPS based on ’22 EPS of $12.73/share as an initial value rather than ’23 Q1 $12.79 (annualized).

My Forecast High P/E is 15.0. Over the past decade, high P/E has ranged from 17.0 in ’13 to 32.7 in ’17 (56.5 outlier in ’18 excluded) with a last-5-year mean (excluding the outlier) of 22.6 and a last-5-year-mean average P/E of 16.4. I am forecasting below the range.

My Forecast Low P/E is 6.0. Over the past decade, low P/E has ranged from 5.6 in ’20 to 18.2 in ’16 with a last-5-year mean of 10.1. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) is the default $60.10 based on $10.01/share initial value. This is 34.8% less than the previous closing price and 22.7% less than the 52-week low. My LSPF is a level not seen since ’20.

After dividend inception in ’15, Payout Ratio has ranged from 40.9% in ’21 to 71.8% in ’16 with a last-5-year mean of 48.9%. I am forecasting conservatively at 35.0%.

These inputs land MED in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 18.0%.

PAR (using Forecast Average—not High—P/E) is 11.1%, which is decent for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 145 studies done in the past 90 days (my study and 59 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.1%, 10.1%, 21.6, 11.1, and 51.2%. I am lower across the board. Value Line projects a future average annual P/E of 20.0, which is higher than MS (16.4) and mine (10.5).

MS high/low EPS is $20.69/$12.53 vs. my $12.73/$10.01 per share. My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $85.00 implies a Forecast Low P/E of 8.5 rather than the above-stated 11.1. MF LSPF is 23.5% below the default value of $10.01/share * 11.1 = $111.11, which results in more conservative zoning. This remains 41.4% higher than mine.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Although I can’t calculate the former from a growth rate less than 1.0%, Relative Value (M* data) is 0.44, which suggests the stock to be significantly undervalued.

I am also just starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 20 * [$11.10 – ($7.15 + $0.90)] = $61.00 (i.e. stock overvalued by 51.0%).

I would look to buy this stock under $92/share.

Categories: BetterInvesting® | Comments (0) | Permalink

MKTX Stock Study (7-6-23)

Posted by on August 30, 2023 at 06:33 | Last modified: July 6, 2023 10:02

I recently did a stock study on MarketAxess Holdings, Inc. (MKTX) with a closing price of $258.38.

M* writes:

     > Founded in 2000, MarketAxess is a leading electronic fixed-income
     > trading platform that connects broker/dealers and institutional
     > investors. The company is primarily focused on credit based fixed
     > income securities with its main trading products being U.S.
     > investment-grade and high-yield bonds, Eurobonds, and Emerging
     > Market corporate debt. Recently the company has expanded more
     > aggressively into Treasuries and municipal bonds with the
     > acquisitions of LiquidityEdge and MuniBrokers in 2019 and 2021,
     > respectively. The company also provides pre- and post-trade
     > services with its acquisition of Regulatory Reporting Hub from
     > Deutsche Börse Group in 2020 adding to its product offerings.

Over the past decade, this small-size company has grown sales and EPS at annualized rates of 14.2% and 18.2%, respectively. Lines are mostly up, straight, and parallel except for EPS dips in ’21 and ’22. PTPM leads peer and industry averages while trending lower recently from 44.9% (’13) to 51.8% (’16) to 47.1% (’22) with a last-5-year mean of 49.9%.

Over the past decade, ROE also leads peer and industry averages while going from 23.8% (’13) to 29.5% (‘190 then decreasing to 24.6% (’22) with a last-5-year mean of 28.3%. Debt-to-Capital is much lower than peer and industry averages as the company has no debt (uncapitalized leases only): last-5-year mean is 7.0%.

Interest Coverage is over 500 while Quick Ratio is 2.2. M* gives an Exemplary rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

With regard to sales growth:

I am forecasting near the bottom of the range at 10.0%.

With regard to EPS growth:

The mean of five long-term estimates is 13.6% per year but three being identical makes me suspicious of data duplication. Regardless, I am forecasting below the range. I will use ’22 EPS of $6.65/share as the initial value rather than ’23 Q1 EPS of $6.90 (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E has ranged from 37.4 in ’14 to 87.0 in ’21 with a last-5-year mean of 71.0. The last-5-year-mean average P/E is 54.9. I am forecasting [at upper end of my comfort zone] below the range.

My Forecast Low P/E is 29.0. Over the past decade, low P/E has ranged from 18.9 in ’13 to to 50.4 in ’21 with a last-5-year mean of 38.8. The last-10-year median is 33.9. I am forecasting below the latter [’13, ’14 (24.0), and ’15 (26.0) are lower].

My Low Stock Price Forecast (LSPF) is the default $192.90 based on $6.65/share initial value. This is 25.3% less than the previous closing price and 11.3% less than the 52-week low.

Over the past decade, Payout Ratio has ranged from 28.7% in ’13 to 42.1% in ’22 with a last-5-year mean of 37.2%. I am forecasting below the range at 28.0%.

These inputs land MKTX in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.2%.

PAR (using Forecast Average—not High—P/E) of 6.4% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 44 studies over the past 90 days (my study + 14 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.9%, 12.5%, 53.0, 34.1, and 34.0% respectively. I am lower across the board. Value Line projects an average annual P/E of 40.0, which is lower than MS (43.6) but higher than mine (32.0).

MS high/low EPS is $12.32/$6.72 vs. my $10.71/$6.65 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $229.30 implies a Forecast Low P/E of 34.1: an exact match to that cited above. MS LSPF remains 18.9% greater than mine.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. PEG = (current P/E) / (forecast EPS growth rate) = 38.0 / 10.0 = 3.8 (1.5 is generally regarded as an upper limit) while Relative Value (M* data) is 0.69. The former (latter) suggests the stock to be overvalued (undervalued).

I would look to re-evaluate MKTX under $238/share.

Categories: BetterInvesting® | Comments (0) | Permalink

AKAM Stock Study (7-5-23)

Posted by on August 28, 2023 at 06:21 | Last modified: July 4, 2023 09:53

I recently did a stock study on Akamai Technologies, Inc. (AKAM) with a closing price of $91.32.

M* writes:

     > Akamai operates a content delivery network, or CDN, which entails
     > locating servers at the edges of networks so its customers, which
     > store content on Akamai servers, can reach their own customers
     > faster, more securely, and with better quality. Akamai has over
     > 325,000 servers distributed over 4,100 points of presence in more
     > than 1,000 cities worldwide. Its customers generally include
     > media companies, which stream video content or make video
     > games available for download, and other enterprises that run
     > interactive or high-traffic websites, such as e-commerce firms and
     > financial institutions. Akamai also has a significant security
     > business, which is integrated with its core delivery and
     > computing businesses to protect customers from cyberthreats.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 8.9% and 10.6%, respectively. While sales have been up and straight, EPS declines in ’15, ’17, and ’22 make the graph look somewhat cyclical. Normalized EPS is a bit more straight. PTPM leads peers and trails the industry as it trends down from 26.6% in ’13 to 18.2% in ’22 with a last-5-year mean of 17.9%.

Also over the past decade, ROE leads peers and trails the industry while trending sideways from 11.3% in ’13 to 12.1% in ’22 with a last-5-year mean of 12.3%. Debt-to-Capital is lower than peer and industry averages despite trending higher from 0% in ’13 to 42.1% in ’22 with a last-5-year mean of 39.1%.

Interest Coverage is 58.4 and Quick Ratio is 1.7. M* gives an Exemplary rating for Capital Allocation and Value Line gives a B++ rating for Financial Strength.

With regard to sales growth:

I am forecasting near the bottom of the range at 4.0%.

With regard to EPS growth:

The mean of six long-term estimates is 9.2% per year. I am forecasting below the range at 7.0%. I will use ’23 Q1 EPS of $2.86/share (annualized) as the initial value rather than ’22 EPS of $3.26.

My Forecast High P/E is 30.0. Over the past decade, high P/E has ranged from 31.8 (’21) to 56.9 (’17) with a last-5-year mean of 36.9. The last-5-year-mean average P/E is 30.7. I am forecasting below the range.

My Forecast Low P/E is 22.0. Over the past decade, low P/E has ranged from 19.7 (’19) to 35.4 (’17) with a last-5-year mean of 24.4. I am forecasting toward the lower end of the range [only ’19 and ’13 (20.3) are lower].

My Low Stock Price Forecast (LSPF) is the default value $62.90 based on $2.86/share initial value. This is 31.1% less than the previous closing price and 11.0% less than the 52-week low.

These inputs land AKAM in the HOLD zone with a U/D ratio of 1.0. Total Annualized Return (TAR) is 5.7%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 2.7%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 85 studies over the past 90 days (my study along with 16 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 7.2%, 9.0%, 34.2, and 23.8, respectively. I am lower across the board. Value Line projects an average annual P/E of 34.0, which is higher than MS (29.0) and much higher than mine (26.0).

MS high/low EPS is $4.80/$2.97 vs. my $4.01/$2.86 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $69.40 implies a Forecast Low P/E of 23.4, which is close to the above-stated 23.8. MS LSPF remains 10.3% higher than mine, which lends itself to more aggressive zoning.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.58: just above the upside threshold of 1.50. Relative Value (M* data) is 1.04. Both suggest the stock to be slightly overvalued.

I am also just starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 20 * ($9.25 – [0 + $2.75)] = $130.00 (i.e. stock undervalued by 30%).

I would look to re-evaluate AKAM under $77/share.

Categories: BetterInvesting® | Comments (0) | Permalink

CTSH Stock Study (7-31-23)

Posted by on August 25, 2023 at 07:07 | Last modified: July 31, 2023 12:01

I recently did a stock study on Cognizant Technology Solns Corp. (CTSH) with a closing price of $65.76. Previous studies are here and here.

M* writes:

     > Cognizant is a global IT services provider, offering consulting and
     > outsourcing services to some of the world’s largest enterprises spanning
     > the financial services, media and communications, healthcare, natural
     > resources, and consumer products industries. Cognizant employs nearly
     > 300,000 people globally, roughly 70% of whom are in India, although
     > the company’s headquarters are in Teaneck, New Jersey.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 8.5% and 7.4%, respectively. Lines are mostly up and parallel except for a sales dip in ’20 and EPS rockiness (down in ’16, ’17, ’19, and ’20). PTPM has been above peer and industry averages despite trending down from 19.1% in ’13 to 15.5% in ’22 with a last-5-year mean of 15.2%.

Also over the past decade, ROE trails peer and industry averages ranging from 12.2% in ’20 to 21.7% in ’13 with a last-5-year mean of 17.0%. Despite increasing from 0% in ’13 to 11.1% in ’22, Debt-to-Capital is much less than peers and the industry with a last-5-year mean of 11.3%.

M* gives a “Standard” rating for Capital Allocation while Value Line gives an A+ grade for Financial Strength. Interest Coverage is over 117 and Quick Ratio is 1.87.

With regard to sales growth:

I am forecasting below both long-term estimates at 4.0% per year.

With regard to EPS growth:

My 5.0% forecast is at the bottom of the long-term-estimate range (mean of six: 7.9%). I will use ’22 EPS of $4.41/share as the initial value rather than ’23 Q1 EPS of $4.49 (annualized).

My Forecast High P/E is 21.0. Over the past decade, high P/E has ranged from 21.2 in ’22 to 32.2 in ’20 with a last-5-year mean of 24.4. I am forecasting just below the range. The last-5-year-mean average P/E is 19.9.

My Forecast Low P/E is 11.0. Over the past decade, low P/E has ranged from 11.6 in ’22 to 20.4 in ’17 with a last-5-year mean of 15.5. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $48.50 is the default value based on $4.49/share initial value. This is 26.2% less than the previous close and 5.5% less than the ’22 [and 52-week] low.

Since a dividend was issued in 2017, Payout Ratio has ranged from 17.8% in ’17 to 34.2% in ’20 with a last-5-year mean of 25.8%. I am forecasting below the range at 17.0%.

These inputs land CTSH in the BUY zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 13.3%.

PAR (using Forecast Average—not High—P/E) is 7.6%, which is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 346 studies done in the past 90 days (my study and 77 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 6.6%, 8.1%, 22.5, 15.9, and 17.0%. I am at or lower than each. Value Line projects a future average annual P/E of 17.0, which is lower than MS (19.4) and higher than mine (16.0).

MS high / low EPS is $6.52 / $3.69 vs. my $5.63 / $4.41 (per share). My high EPS is lower due to a lower growth rate. I am confused why MS $3.69/share is so low. ’22 and ’21 annual EPS are both higher. I have to go back to Q4 2020 to find the most recent quarterly report that low. Although my EPS range is still slightly lower, I almost think MS low EPS is too extreme.

MS LSPF of $50.60 implies a Forecast Low P/E of 13.7 vs. the above-stated 15.9. MS LSPF is 13.8% less than the default $3.69/share * 15.9 = $58.67, which results in more conservative zoning. MS LSPF remains 4.3% greater than mine.

MOS backing the current study seems robust. My TAR is also less than MS 17.9% and really, I’d like TAR to be at least 15.0%.

I track a few different valuation metrics. PEG is 1.4 (Zacks) or 2.8 (overvalued using my forward P/E). Relative Value [(current P/E) / 5-year-mean average P/E] is undervalued at 0.73 (M*). Kim Butcher’s “quick and dirty DCF” prices the stock at 15.5 * [$8.00 – ($1.60 + $1.00)] = $83.70 thereby suggesting the stock to be undervalued by 21.0%.

I would look to BUY the stock under $64/share (greater TAR).

Categories: BetterInvesting® | Comments (0) | Permalink

MMM Stock Study (7-5-23)

Posted by on August 24, 2023 at 06:59 | Last modified: July 3, 2023 20:35

I recently did a stock study on 3M Co. (MMM) with a closing price of $101.14. Previous studies are here and here.

Value Line writes:

     > 3M Company is a diversified manufacturer and technology
     > company with operations in more than 70 countries. It is
     > among the leading manufacturers in many of the markets it
     > serves. The conglomerate currently operates four business
     > segments: Safety and Industrial (33.9% of ’22 sales);
     > Transportation and Electronics (26.0%); Health Care
     > (24.6%); Consumer (15.5%). Research & Development:
     > $1.9 billion or 5.4% of ’22 sales.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 1.3% and 4.2%, respectively. Lines are somewhat up, but hardly straight or parallel (sales declines in ’15, ’16, ’19, and ’22; EPS declines in ’17 and ’19). Stock price is near a 10-year low. Per visual inspection, this is not a high-quality growth stock. PTPM has been greater than peer and industry averages despite trending lower from 21.3% in ’13 to 18.7% in ’22 with a last-5-year mean of 19.8%.

Over the past decade, ROE has been greater than peer and industry averages while increasing from 25.1% in ’13 to 39.7% in ’22 with a last-5-year mean of 43.3%. Debt-to-Capital has also been greater than peer and industry averages while trending higher from 25.7% in ’13 to 53.4% in ’22 with a last-5-year mean of 59.4%. Interest Coverage is 13.7 and Quick Ratio is 0.8. M* gives a Standard rating for Capital Allocation and Value Line gives an A rating for Financial Strength.

MMM faces risk due to PFAS (environmental) and Combat Arms (military earplugs) litigation. In the most recent analyst report, M* assumes total liability of $24B (up from $18B three months ago).

Although M* assigns a wide/stable economic moat to the company, CFRA seems to disagree:

     > …most 3M products are commodity-like, such as roofing
     > granules or adhesives. Commodity-like products with intense
     > competition have little pricing power, making it difficult
     > to improve margins over the long term. 3M does enjoy brand
     > power on certain products, but not enough to drive overall
     > pricing growth that can keep up with inflation.

With regard to sales growth:

I am forecasting below the long-term estimate at 1.0% per year.

With regard to EPS growth:

The mean of six long-term estimates is 4.7% growth per year. I am forecasting below the range at 1.0% per year. I will use ’23 Q1 EPS of $9.65/share (annualized) as the initial value rather than ’22 EPS of $10.18.

My Forecast High P/E is 18.0. Over the past decade, high P/E has ranged from 17.9 (’22) to 30.8 (’17) with a last-5-year mean of 23.1. The last-5-year-mean average P/E is 19.4. I am forecasting near the bottom of the range (only ’22 is lower).

My Forecast Low P/E is 8.0. Over the past decade, low P/E has ranged from 10.5 (’17) to 21.9 (’22) with a last-5-year mean of 15.6. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default value $77.20 based on $9.65/share initial value. This is 23.7% less than the previous closing price and 16.5% less than the 52-week low.

Over the past decade, Payout Ratio has increased from 37.8% to 58.5% in ’22 with a last-5-year average of 63.1%. I am forecasting below the entire range at 37.0%.

These inputs land MMM in the BUY zone with a U/D ratio of 3.6. Total Annualized Return (TAR) is 14.8%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-sized company at 8.5%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 116 studies over the past 90 days (52 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 2.5%, 4.0%, 21.3, 14.9, and 60.1%, respectively. I am lower across the board. Value Line projects an average annual P/E of 14.0, which is lower than MS (18.1) and higher than mine (13.0).

MS high/low EPS is $12.01/$9.42 vs. my $10.14/$9.65 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $100.20 implies a Forecast Low P/E of 10.6 as opposed to the above-stated 14.9. MS LSPF is 28.6% less than the default value of 14.9 * $9.42/share = $140.36/share, which results in more conservative zoning. It remains 29.8% higher than mine, however.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 1.22. Relative Value (M* data) is 0.54. The latter reflects the stock as significantly undervalued.

I am also just starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 12 * (16.10 – [6.75 + 3.00)] = $76.20 (i.e. stock overvalued by 33%).

The litigation risk somewhat offsets what I perceive to be a robust MOS in this study. In the most recent report, M* increased its uncertainty rating to “very high” and suggested the dividend may be at risk. While MMM is a BUY under $103/share, maybe I knock another 5-10% off and look to buy under $98 or $93 in case the legal tab ends up higher than anticipated.

Categories: BetterInvesting® | Comments (0) | Permalink

WAL Stock Study (7-3-23)

Posted by on August 22, 2023 at 07:02 | Last modified: July 3, 2023 10:49

I recently did a stock study on Western Alliance Bancorp (WAL) with a closing price of $36.47. The original study is here.

M* writes:

     > Western Alliance Bancorporation is a Las Vegas-based holding
     > company with regional banks operating in Nevada, Arizona, and
     > California. The bank offers retail banking services and focuses
     > on mortgages for retail customers and commercial loans, mainly
     > for real estate. The bank also has an investment advisory
     > business that manages investment portfolios for Western clients
     > and clients of other banks.

Over the past decade, this medium-size bank has grown assets and EPS at annualized rates of 22.3% and 24.5%, respectively. Lines are mostly up, straight, and parallel (including total assets and sales). PTPM has led peer and industry averages while trending up from 41.2% in ’13 to 57.5% in ’22 with a last-5-year mean of 56.6%.

Also over the past decade, ROE leads peer and industry averages while trending up from 16.8% in ’13 to 21.0% in ’22 with a last-5-year mean of 18.4%. Debt-to-Capital has been lower than peer and industry averages despite increasing from 30.9% in ’13 to 55.7% in ’22 for a last-5-year mean of 26.2%. Value Line has recently trimmed its Financial Strength rating to B+.

ROAA has increased from 1.34% in ’13 to 1.69% in ’22 with a last-5-year average of 1.85%. This is outstanding and has been above 1.50% every year since ’15.

With regard to sales growth:

The estimates have not stopped going down. I am lowering my forecast as well to 3.0%.

With regard to EPS growth:

The range of five long-term estimates is -13.3% to +10.2%. For high EPS, I will forecast zero growth: just below the 5-estimate mean (+0.5%). For low EPS, I will forecast -2.0%. I will use an initial value of ’23 Q1 EPS $8.76/share (annualized) rather than ’22 EPS of $9.70.

My Forecast High P/E is 9.0. From ’13-’22, high P/E has gone from 18.7 to 12.9 with a last-5-year mean of 13.4. The last-5-year-mean average P/E is 10.0. I am forecasting below the entire range (down from 11.0 in previous WAL study).

My Forecast Low P/E is 2.0. From ’13-’22, low P/E has gone from 8.2 to 5.7 with a last-5-year mean of 6.7 (lowest was 4.1 in ’20). Due to the uncertainty and bank failures, I had previously forecast 1.0 to cover the 52-week low price. I now believe the panic selling for banks is behind us. Black Swans can occur anywhere: they just rarely do.

My Low Stock Price Forecast (LSPF) is the default value $15.80 based on $7.92/share initial value. This is 56.7% below the previous close and over double the 52-week low price of $7.50 seen the week of 3/8/23.

Again, short of failing and having to shudder its doors, I don’t think the 52-week low will be tested anytime soon.

WAL started paying a dividend in ’19 with an average Payout Ratio of 14.7% since. I am forecasting below the range (10.3% – 19.8%) at 9.0%.

These inputs land WAL in the HOLD zone with a U/D ratio of 2.0. Total Annualized Return (TAR) is 17.7%.

PAR (using Forecast Average—not High—P/E) is 7.4%, which is less than I seek for a medium-size stock. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 263 studies over the past 90 days (130 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 11.7%, 10.6%, 11.2, 5.9, and 14.2%, respectively. I am lower across the board. Value Line projects an average annual P/E of 4.3, which is lower than MS (8.6) and mine (5.5). This Value Line estimate is for 2024, though, which is two years out rather than five. Should a normal recovery occur, I expect to see a P/E range only slightly lower than historical averages (last 4-year-mean average annual P/E is 9.3 per Value Line).

MS high/low EPS is $14.96/$8.76 vs. my $8.76/$7.92 (per share). My high EPS is lower due to a lower forecast growth rate.

MS LSPF of $25.20 implies a Forecast Low P/E of 2.9 as opposed to the above-stated 5.9. This is 51.2% less than the default value of 5.9 * $8.76/share = $51.68/share, which results in more conservative zoning. It remains 59.5% higher than mine.

MOS seems robust in the current study.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Zacks reports PEG of 0.99 (lower limit of fair value generally regarded as 1.0). Relative Value (M* data) is 0.42. Both of these reflect the stock as undervalued.

I would look to BUY under $31/share.

Categories: BetterInvesting® | Comments (0) | Permalink
Older Entries Newer Entries