Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Stage Stores Inc (SSI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Stage Stores, Inc. operates specialty department stores mainly in small and mid-sized towns and communities. The Company’s department stores offer a range of brand name and private label apparel, accessories, cosmetics, footwear and home goods. The Company operates approximately 830 specialty department stores in over 40 states under the BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE nameplates and a direct-to-consumer business. The Company’s direct-to-consumer business consists of its e-commerce Website and Send program. The Company’s e-commerce Website includes a range of merchandise categories found in its stores, as well as other product offerings. The Company’s in-store Send program allows customers to have merchandise shipped directly to their homes if the preferred size or color is not available in their local store. The Company’s private label portfolio brands are developed and sourced through agreements with third-party vendors.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$75,430,788||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.36||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-52.86%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||47.71||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.18||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.36||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.63||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$0.80|
|MG Value based on 0% Growth||$0.47|
|Market Implied Growth Rate||19.61%|
|% of Intrinsic Value||197.68%|
Stage Stores Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.83 in 2013 to an estimated $0.06 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.61% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Stage Stores Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.6 per share, for a yield of 22.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 47.71, which was above the industry average of 22.16. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.34.
Stage Stores Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$1.34|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||10/1/2016|
|Total Current Assets||$648,528,000|
|Total Current Liabilities||$275,121,000|
|Shares Outstanding (Diluted Average)||27,155,000|
Earnings Per Share History
|Next Fiscal Year Estimate||-$0.95|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.06|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.