Plenty of good homework to share with readers this week. This one comes from Marvin in Ohio.
I have taken the stock class when it was recently offered in Cincinnati. I have been using your blog and the investools website. I have learned so much.
I wanted to email you to make sure that I am understanding all of this new found knowledge. So here is my case study:
Company: Central European Distr CoSymbol: CEDCCurrent Price: 42.12 (9/26)Phase I: 7/3MG-Zacks: 4.00Price Pattern: 4.00
Moat (If I understand this right): They are the leading importing in Poland for Beer, wine and spirits. They are the 4th leading company in their industry. [This industry is the one defined by investools.]
Sticker Price (Target): 80.71MOS: 40.35Estimated 5 yr Growth: 30%Zacks Projected Growth: 30%P/E: 28.58Projected P/E: 16.22PEG: 0.95 (This tells me the growth is better than Projected P/E)5 Yr Projected EPS: 44.265 Yr Projected Sales: 45.12ROE: 18%ROIC: 14% (I don't know what ROIC stands for but you mention it a lot)5 Yr Cash Flow Growth: 24.1
Industry (According to Investools): Manufacturing/Machining/Consumer
Industry Rank: Industry is bottom 6 percentileCEDC Rank in Industry: 4 best company in industry out of 15 (18-week Ranking)
Did I do the MOS right (I used the "valuation analysis" from investools)? I believe this would be a good stock for your rule #1, but am concerned that it is in a weak group. Am I doing things right? Was my method correct?
Any feedback ould be helpful.
My response to Marvin's homework:
Very very nice.
You did a great job of nailing the numbers on this one. While they are not the biggest in their biz, they seem to be growing pretty well. And the Big Five numbers scream "MOAT". ROIC, the most important of all, is the return on invested capital. it means the money they made on the total investable assets they that year.
So what's left to do before we buy CEDC? Let's get a read on the risk of investing in a Polish business. First risk is that this company gets paid in Polish money but we're investing US dollars. If the Polish currency devalues against the US dollar, the value of our earnings will go down and take the stock price right with it. So this business has a currency risk to it. Of course it could go the other way and help us, too. But you better have an idea of what's happening with currencies.
Second, this is a business-doing-business-in-Poland problem: how do we know some gov't hack isn't going to see the profit in booze in Poland and either outlaw this business or make it easy for his friend to put CEDC out of business? Could it happen?
So we've got a couple of additional risks to deal with that mean that we have to really understand the business.
So go dig and and get the answers to these two problems for us!