Buy This Retailer Trading Below Book Value
By Christopher Speetzen
Seeking alpha
Read more https://seekingalpha.com/amp/article/4100390-buy-retailer-trading-book-value
Seeking alpha
Summary
- Hibbett Sports trades at a steep discount to book value.
- It operates in a difficult sporting goods market.
- Can it survive the Amazon economy?
Hibbett Sports, Inc. (NASDAQ:HIBB) is a small-cap sporting goods retailer operating retail stores in small- to mid-sized markets mainly in the Southeast, Southwest, Mid-Atlantic and the Midwest. Like practically all brick-and-mortar retailers over the last year, its stock has been pummeled, dropping from around $40 a year ago to ~$10 after earnings were reported Friday, August 18th. The main question to ask is whether this drop is valid or not and whether the stock presents an opportunity at the present price.
Its second-quarter results were pretty dismal:
- Loss of $0.15 per share.
- Comparable store sales decreased 11.7%.
- Net sales for the 13-week period ended July 29, 2017, decreased 9.2% to $188.0 million compared with $206.9 million for the 13-week period ended July 30, 2016.
- Gross margin was 28.9% of net sales for the 13-week period ended July 29, 2017, compared with 33.0% for the 13-week period ended July 30, 2016. The decrease was mainly due to promotions and markdowns taken to liquidate excess and aged inventory.
With these poor results, coupled with Amazon (NASDAQ:AMZN) eating everybody’s lunch in retail, why would anybody ever purchase this stock? I’m going to point readers to the balance sheet which is about as pristine as a retailer can have.
Currently HIBB is trading with a price to book of 0.64. That means if somebody were to liquidate the company, you would get a dollar for every 64 cents you paid. Not a bad deal. The problem with this is what are the assets and liabilities really worth? What I did in an effort to be conservative was to take a discount to the inventories, other current assets and property/equipment that I can’t really know the full value of. I felt this was needed especially since the company needed markdowns and promotional activities in order to reduce aged inventory. After taking a 25% discount to all the assets (except cash) and leaving liabilities at 100%, the company is still trading below book value.
8/18/2017
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HIBB
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Shares
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20.78
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P/Share
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$ 10.000
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Mkt Cap
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$ 207.81
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Revised
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Value
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% of Total
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Discount
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Value
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Cash and cash equivalents
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$ 52.76
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11%
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0.00%
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$ 52.76
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Inventories, net
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$ 276.43
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59%
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25.00%
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$ 207.32
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Other Current Assets
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$ 21.04
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4%
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25.00%
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$ 15.78
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Total Current Assets
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$ 350.23
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$ 275.86
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Property and equipment, net
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$ 113.73
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24%
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25.00%
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$ 85.30
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Other Assets
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$ 6.02
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1%
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25.00%
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$ 4.51
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Total Assets
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$ 469.99
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$ 365.68
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Accounts Payable
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$ 98.88
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Short term capital leases
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$ 0.61
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Accrued Expenses
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$ 17.09
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Total Current Liabilities
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$ 116.58
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Non-Current Liabilities
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$ 27.57
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Total Liabilities
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$ 144.15
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Equity
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$ 325.84
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$ 221.53
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Book Value / Share
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$ 15.68
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$ 10.66
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Price to Book
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0.64
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0.94
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Balance sheet built by author using information from latest earnings results.
So at around $10, you are getting this retailer with zero debt, one quarter of its market cap in cash, and trading well below book value (even my "adjusted" book value). The company is also still expecting to have positive earnings per share of $1.25 to $1.35 this year, which puts it at a P/E of ~8 compared to the market as a whole which is trading for ~24 times earnings.
Risks
I always try to highlight risks because many things can go wrong with any investment.
- Amazon could destroy the retail market.
