Company name Ritchie Bros. Auctioneers (USA)
Stock ticker RBA
Live stock price [stckqut]RBA[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $13.77
Target stock price (averages with growth) $19.71
Target stock price (averages with no growth) $19.25
Target stock price (manual assumptions) $15.75

The following company description is from Google Finance: http://www.google.com/finance?q=rba

Ritchie Bros. Auctioneers Incorporated and its subsidiaries sells industrial equipment and other assets for the construction, transportation, material handling, mining, forestry, petroleum, marine, real estate, and agricultural industries at its unreserved auctions worldwide. The Company’s principal business activity is the sale of industrial equipment and other assets at auctions. Its customers are both buyers and sellers of equipment, trucks and other industrial assets. The majority of its buyers are end users of equipment (retail buyers), such as contractors, with the remainder being primarily truck and equipment dealers, rental companies and brokers (wholesale buyers). Consignors to its auctions represent a mix of equipment owners, the majority being end users of equipment, with the balance being finance companies, truck and equipment dealers and equipment rental companies, among others. On May 15, 2012, the Company acquired AssetNation LLC.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

 

stockup

As you look at company metrics, it is necessary to remember that a company will rarely be perfectly consistent. Company results will vary due to a variety of situations, some of which will be outside of company control. For instance, a general increase in the price of gasoline can affect many companies for the positive or the negative.

These market adjustments are extremely difficult for company managers to adapt to rapidly and may force them to grow too quickly, face unforeseen costs, or see a contraction in their core markets. Over the course of a few months, most companies will start to accommodate the new market situations and be back on track; however, that peak or dip may disrupt the metrics for any given quarter.

Because of these incidental disruptions in business, a Confident Investor will not spend too much time digging into a company’s quarterly releases. Instead, focus on the annual numbers. Quarterly statements are more for the sake of allowing you to understand if there has been some significant change in the company’s core business, as opposed to a short-term disruption.

It is vital to look at the changes from year to year and over time. These changes will indicate if the company takes advantage of market situations and weathers bad times well. You thus need to understand how to analyze growth over time and decide if it is acceptable.

The simplest method of averaging these values is to take the last 5 or 10 years of results and calculate the average. Unfortunately, this can give a slightly distorted picture of the current performance of the company. To understand, let’s look at the sales revenue of a fictional company: Acme Widgets, Inc. ACME has the following sales revenue (all numbers below are in millions of dollars).

Year

Revenue

% increase from previous year

10

 $ 600 3.4%

9

 $ 580 3.6%

8

 $ 560 3.7%

7

 $ 540 3.8%

6

 $ 520 4.0%

5

 $ 500 25.0%

4

 $ 400 33.3%

3

 $ 300 50.0%

2

 $ 200 33.3%

1

 $ 150

 

You could gather the first two columns from a variety of sources. The third column is the revenue increase for that year compared to the immediately preceding year. Most third party sites do not provide this information, so you will need to calculate it.

To calculate the third column, simply take the year’s metric, subtract it from the previous year, and divide that amount by the previous year. In the case of 2001, subtract $200M from $150M, which is $50M. If you divide $50M by $150M, the result is a 33.3% increase. If you are a registered owner of my book, The Confident Investor, you can download a worksheet that will help you with this effort by going to http://www.Confident-Investor.com/analysis-worksheet. You will need to be a registered user to access this page but you can register easily and for free by following the instructions.

A casual look at the revenue of ACME shows that they are growing their revenue, but the growth rate has slowed down fairly rapidly. However, if you do the simple calculation as to what percent increase it would take to grow $150M to $600M in 10 years, you would calculate this to be 13.9% per year if compounded continuously. A 13.9% increase year-over-year is great; but that is not occurring in this instance. ACME has not been close to that number for a few years.

You could average the annual rates by adding them up and dividing by 9. This would result in 12.8%. This is not indicative of what you would think of a company that has grown less than 4% for the past few years.

You could also perform a linear regression analysis of the growth rate. Linear regression is a moderately advanced mathematical method of fitting a straight line to a data set. It is easy to compute the linear regression in today’s modern spreadsheets but very complicated to do on paper or in your head. I don’t suggest that investors use linear regression as there is an easier method.

You do not want to focus on the last two to four years, since another company might have exactly the opposite circumstances. Another company could have had relatively flat increases for many years and then just recently hit a significant expansion of business. While you want to reward the recent increase (as it will likely continue to the immediate future), you also want to take in account that the company was flat in the past.

To accomplish this, you need to weight the averages over the years. The more recent years are more influential than the middle years which, in turn, are more influential than the later years. To solve this problem, I created the Decennary Time Weighted Average (DTWA). To learn about DTWA, please read my book as it is well explained in its pages.   You can purchase my book wherever books are sold such as AmazonBarnes and Noble, and Books A Million. It is available in e-book formats for NookKindle, and iPad.

Stock source from OpenClipart.

Company name Questcor Pharmaceuticals Inc
Stock ticker QCOR
Live stock price [stckqut]QCOR[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Good
EPS growth Good
P/E growth Good
EBIT growth Good

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $72.41
Target stock price (averages with growth) $81.5
Target stock price (averages with no growth) $38.76
Target stock price (manual assumptions) $67

The following company description is from Google Finance: http://www.google.com/finance?q=qcor

Questcor Pharmaceuticals, Inc. (Questcor) is a biopharmaceutical company. The Company is focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders. Its primary product is H.P. Acthar Gel (repository corticotropin injection), or Acthar, an injectable drug that is approved by the United States food and drug administration (FDA), for the treatment of 19 indications. Its research and development program is focused on: the evaluation of the use of Acthar for certain on-label indications; the investigation of other potential uses of Acthar for indications not FDA approved; and the expansion of its understanding of how Acthar works in the human body (pharmacology), and ultimately, its mechanisms of action in the disease states for which it is used, or may be used in the future. The Company sells Doral to pharmaceutical wholesalers, which resell Doral primarily to retail pharmacies and hospitals.

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

 

 

Company name Yum! Brands, Inc.
Stock ticker YUM
Live stock price [stckqut]YUM[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $59.26
Target stock price (averages with growth) $70.78
Target stock price (averages with no growth) $60.59
Target stock price (manual assumptions) $69.08

The following company description is from Google Finance: http://www.google.com/finance?q=yum

Yum! Brands, Inc. (YUM) is a quick service restaurant company based on number of system units, with approximately 37,000 units in more than 120 countries and territories. The Company through its three concepts of KFC, Pizza Hut and Taco Bell (the Concepts), develops, operates, franchises and licenses a worldwide system of restaurants, which prepare, package and sell a menu of priced food items. Units are operated by a Concept or by independent franchisees or licensees under the terms of franchise or license agreements. In addition, YUM owns non-controlling interests in Chinese entities who operate in a manner similar to KFC franchisees, as well as a non-controlling interest in Little Sheep Group Limited (Little Sheep). It operates in five segments: YUM Restaurants China, YUM Restaurants International, Taco Bell U.S., KFC U.S. and Pizza Hut U.S. In December 2011, it sold the Long John Silver’s and A&W All-American Food Restaurants brands. On February 1, 2012, it acquired Little Sheep.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns. I am leaving Yum! Brands on my Watch List but it’s performance will need to improve to stay on the list the next review.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

 

Company name Washington Banking Co
Stock ticker WBCO
Live stock price [stckqut]WBCO[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Fair
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $17.72
Target stock price (averages with growth) $16.91
Target stock price (averages with no growth) $13.44
Target stock price (manual assumptions) $18.31

The following company description is from Google Finance: http://www.google.com/finance?q=wbco

Washington Banking Company is a bank holding company. The Company’s primary business is conducted by its wholly owned subsidiary, Whidbey Island Bank (the Bank). The business of the Bank, which is focused in the northern area of Western Washington, consists primarily of attracting deposits from the general public and originating loans. Whidbey Island Bank conducts a full-service, community, commercial banking business. The Bank also offers nondeposit managed investment products and services, which are not Federal Deposit Insurance Corporation (FDIC) insured. These programs are provided through the investment advisory companies Elliott Cove Capital Management LLC and DFC Services & DFC Insurance Services. Another nondeposit product offered through the Bank, which is not FDIC insured, is a sweep investment option available through a brokerage account.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.