Rule #1 Finance Blog

With Investor Phil Town


Dinesh read my post on BUD and had some questions that deserve a
deeper look on my part.  His biggest concern is that debt is rising
faster than sales and EPS, and that the business has been buying back
its own stock for ten years – which raises the issue of whether it’s been
undervalued all that time, or if managment has been playing a game with our

First let’s take at his email, and then I’ll post my response to his research at the end.

Hello Phil,

I am regular reader of your Blog and am thankful and grateful for sharing your knowledge so generously with all.

I have a question. I am trying to understand if BUD is YUMMMMy or MMMM.

You mentioned BUD is good buy. Supposedly Warren Buffet also bought.  However I have some doubts. Could you please explain.  I checked 10 years summary on MSN.
From tables it is clear that company’s Long Term Debt is growing at higher rate than Sales and Net Income. EPS is growing but at the same time number of shares outstanding is reducing.

Why would any company buy back its shares for 10 consecutive years? Was it undervalued for so long?  If we say that company was using extra cash wisely then why debt was rising?  I am really confused here.  Could you throw some light please.

Thanks & Regards,


Excellent questions so let’s dig in and see if we can get to an
answer.  I might have to dump this thing if Dinesh’s concerns turn out
to be valid:

First let’s check my two favorite numbers:  ROIC and Book Value growth rate.
ROIC at BUD is really, really good. 19% solid. But BVPS is a
mess.  I just re-read my little BUD post and I either didn’t write
about equity or completely spaced it out.  Either way, it’s a glaring
error on my part to not say what it is.  And what it is is bad.  In
1995 BUD had a book value of $4 a share.  Ten years later it has a book
value of $3 a share. That is really horrible.  That would disqualify
the business right there.
Don’t know how I missed that, but Dinesh, I want to thank you for showing me the light.  Well done.  I’m outta there.
So why did Buffett buy it?  First, it’s a major consumer brand and
it’s in trouble.  If someone can turn it around, it might be worth a
whole lot someday.  Maybe Buffett is just the guy.  Or maybe he has to
buy in with billions when nobody really wants to buy in with him.
Otherwise the price goes up too fast on news that he’s buying.  I don’t
know.  But I do know that I’m not Buffett, and
this here is the proof.  Totally missed one of my own key numbers.
So Dinesh, you get a salute from me to you.  Good job!
Now go play!