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CTSH Stock Study (5-1-24)

Posted by on May 10, 2024 at 06:58 | Last modified: May 1, 2024 11:40

I recently did a stock study on Cognizant Technology Solns Corp. (CTSH, $65.68). Previous studies are here, here, and here.

M* writes:

     > Cognizant is a global IT services provider, offering consulting and
     > outsourcing services to some of the world’s largest enterprises spanning
     > the financial services, media and communications, healthcare, natural
     > resources, and consumer products industries. Cognizant employs nearly
     > 300,000 people globally, roughly 70% of whom are in India, although
     > the company’s headquarters are in Teaneck, New Jersey.

Over the past 10 years, this large-size company has grown sales and EPS at annualized rates of 6.8% and 6.9%. Visual inspection is mediocre with sales dips in ’20 and ’23 along with EPS rockiness from declines in ’16, ’17, ’19, ’20, and ’23.

Over the past decade, PTPM leads peer and industry averages despite trending down from 18.7% (’14) to 14.4% (’23) with a last-5-year mean of 14.6%. ROE trails peer and industry averages, ranging from 12.2% in ’20 to 19.4% in ’14 with a last-5-year mean of 16.5%. Debt-to-Capital is much less than peer and industry averages while declining from 17.5% (’14) to 9.0% (’23) with a last-5-year mean of 11.9%.

Quick Ratio is 1.9 and Interest Coverage is 69.0. M* gives a “Standard” rating for Capital Allocation while Value Line gives an “A+” grade for Financial Strength.

With regard to sales growth:

I am forecasting below both long-term estimates at 5.0% per year.

With regard to EPS growth:

My 6.0% forecast is below the long-term-estimate range (mean of five: 9.0%). Initial value will be ’23 EPS of $4.21/share.

My Forecast High P/E is 19.0. Over the past decade, high P/E trends down from 23.4 (’14) to 18.3 (’23) with a last-5-year mean of 23.3 and a last-5-year-mean average P/E of 19.1. I am forecasting near the bottom of the range (only ’23 is less).

My Forecast Low P/E is 12.0. Over the past decade, low P/E trends down from 17.7 (’14) to 13.4 (’23) with a last-5-year mean of 14.8. I am forecasting near the bottom of the range [only ’22 is less (11.6)].

My Low Stock Price Forecast (LSPF) of $50.50 is default based on initial value of $4.21/share. This is 23.1% less than the previous close and 13.7% less than the 52-week low.

Since a dividend is first issued in 2017, Payout Ratio ranges from 17.8% in ’17 to 34.2% in ’20 with a last-5-year mean of 26.9%. I am forecasting below the range at 17.0%.

These inputs land CTSH in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 11.2%.

PAR (using Forecast Average—not High—P/E) is 7.0%, which is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 94 studies done in the past 90 days (my study and 41 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 4.1%, 6.8%, 20.6, 14.8, and 24.8%. I am lower on all but sales growth. Value Line projects a future average annual P/E of 17.0, which is lower than MS (17.7) and higher than mine (15.5).

MS high / low EPS are $5.89 / $4.20 versus my $5.63 / $4.21 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is much higher than both at $7.00.

MS LSPF of $54.70 implies a Forecast Low P/E of 13.0 vs. the above-stated 14.8. MS LSPF is 12.0% less than the default $4.20/share * 14.8 = $62.16, which results in more conservative zoning. MS LSPF remains 8.3% greater than mine.

TAR (over 15.0% preferred) is very close to MS 11.8%. MOS seems small in the current study, which is unusual for me.

With regard to valuation, PEG is 1.5 and 2.5 per Zacks and my projected P/E, respectively: latter is overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly cheap at 0.82.

One thing that jumps out is increasing analyst estimates from my previous First Cut nine months ago. Both Value Line and M* expect growth to increase in ’25 and beyond. This could bode well for my MOS although with the current increases I have also increased my P/E range. I’ll need to keep judgments fixed to bolster MOS.

CTSH is a BUY under $64/share. With a forecast high price of $107, my TAR criterion won’t be met until $53.50.

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ETSY Stock Study (4-30-24)

Posted by on May 8, 2024 at 06:33 | Last modified: May 1, 2024 14:28

I recently did a stock study on Etsy Inc. (ETSY, $68.88). Previous studies are here and here.

M* writes:

     > Etsy operates a top-10 e-commerce marketplace operator in the
     > U.S. and the U.K., with sizable operations in Germany, France,
     > Australia, and Canada. The firm dominates an interesting niche,
     > connecting buyers and sellers through its online market to
     > exchange vintage and craft goods. With $13.2 billion in 2023
     > consolidated gross merchandise volume, Etsy has cemented itself
     > as one of the largest players in a quickly growing space,
     > generating revenue from listing fees, commissions on sold items,
     > advertising services, payment processing, and shipping labels.
     > As of the end of 2023, the firm connected more than 96 million
     > buyers and 9 million sellers on its marketplace properties:
     > Etsy, Reverb (musical equipment), and Depop (clothing resale).

This medium-size company has grown sales at an annualized rate of 38.0% over the past decade.

EPS is complex. I am excluding negative/fractional EPS in 2013-2016 [otherwise resulting in an inflated growth rate] to start with $0.68/share in ’17. The company takes a goodwill impairment charge of $1.0 billion in ’22 due to Depop and Elo7 acquisitions that slashes EPS to -$5.48 thereby precluding future growth rate projections. If this is overwritten with CFRA’s “normalized” EPS of $4.61 value, then the result is a 38.5% EPS growth rate since 2017.

For ’17-’22, [sales and EPS] lines are mostly up and narrowing despite an EPS dip in ’18. ’23 will be discussed below.

PTPM is above peer and industry averages while increasing from 7.3% in ’17 to 10.7% in ’23 with a last-5-year mean (excluding ’22) of 15.5%. ROE is above peer and industry averages while decreasing from 23.8% in ’17 to -43.1% in ’23 with a last-5-year mean (excluding ’22) of 27.9%.

Debt-to-Capital has risen above peer and industry averages by climbing from 15.0% in ’17 to 129.5% in ’23. Despite being remarkably high, Value Line gives a “B” rating for Financial Strength and writes in a previous report:

     > Although debt represented over 100% of capital at the end of 2022,
     > cash and short-term investments totaled $1.2 billion and the
     > company has only modest debt due over the next five years.
     > Additional funds can be sourced from the company’s $200 million
     > undrawn revolver and $29.1 million in long-term investments that
     > can be liquidated on short notice.

M* rates the company “Wide” for Economic Moat, gives a “Standard” rating for Capital Allocation and, in a previous report, is also not concerned about debt:

     > With our forecast for just 0.8 times average net leverage over the next
     > five years (net debt/adjusted EBITDA), a paucity of near-term debt
     > maturities, and a highly cash generative mode… balance sheet risk
     > appears minimal for the marketplace operator. We believe that Etsy
     > should encounter no difficulties in funding its investments in headcount
     > and platform development with internally generated funds, while
     > retaining substantial flexibility to invest in brand marketing and
     > strategic acquisitions. With no principal maturities until 2026, we
     > view Etsy’s balance sheet health as strong, despite the firm carrying
     > $2.3 billion in gross debt as of the end of the first quarter of 2023.

Quick Ratio is 2.0 and Interest Coverage is 21.8.

With regard to sales:

I am forecasting near the bottom of the range at 3.0% per year.

With regard to EPS:

My 5.0% forecast is below the long-term-estimate range (mean of five: 12.9%).

Initial value—pivotal for any stock study—depends on EPS that is very hard to decipher for this company. From the M* website, I get diluted earnings for ’20-’23, respectively: $2.69, $3.40, -$5.48, and $2.24/share. M* website also gives normalized EPS of $3.31, $4.03, $4.21, and $4.28/share for ’20-’23: three years of consecutive growth with the ’22 goodwill impairment charge excluded. CFRA reports normalized EPS of $3.19, $4.32, $4.61, and $4.99/share: three years of consecutive growth. Value Line reports $2.69, $3.40, $2.46, and $2.24/share. Despite a footnote indicating the $1B goodwill impairment charge excluded for ’22 ($2.46/share), it still reports YOY EPS declines for ’22 and ’23. BI website gives something altogether different with $2.69, $3.40, $4.61, and $2.24: YOY decline only for ’23. Since BI gets data from M*, why is this different from the other two sets of data from the M* website?

Excluding a negative as a nonrecurring expense to smooth out data and enable future projection makes logical sense to me.

In this case, excluding the negative results in consistently growing profits (i.e. M* and CFRA normalized EPS), EPS contraction (Value Line), or delayed EPS contraction (BI website). The waters are muddy.

The BI website pairs a low ’23 EPS with a 17.8% growth rate. This seems too low given my 5.0% growth rate.

In contrast, I feel the ’23 normalized EPS numbers are too high.

As a compromise, I will use M* 2020 normalized EPS of $3.31/share as ’23 initial value. $3.31 * (1.05 ^ 5) = $4.22/share high EPS. Since the BI website uses $2.24 initial value, I need to enter a 13.5% growth rate to get $4.22.

My Forecast High P/E is 30.0. Since 2017, high P/E ranges from 32.1 in ’17 to 96.5 in ’19 with a last-5-year mean of 75.2. The last-5-year-mean average P/E is 52.5. I am forecasting below the range.

My Forecast Low P/E is 14.0. Since 2017, low P/E ranges from 11.1 in ’20 to 52.3 in ’19 with a last-5-year mean of 29.8. I am forecasting toward the bottom of the range [’20 and ’17 (13.8) are lower].

My Low Stock Price Forecast (LSPF) of $46.30 is default based on $3.31/share initial value. This is 32.8% less than the previous close and ~20% less than the 52-week low.

These inputs land ETSY in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 12.9%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 6.1%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on the 12.9% Total Annualized Return (TAR) instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on a tiny sample of 13 studies (my study and 7 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 6.8%, 5.0%, 48.7, and 29.3, respectively. I am equal to or lower for all. Value Line projects an average annual P/E of 35.0, which is less than MS (39.0) and much higher than mine (22.0).

MS high / low EPS are $2.86/ $2.24 versus my $4.22/ $3.31 (per share). My higher EPS range is due to a higher initial value. I think the analyst earnings data confuses most people just like it has me. Value Line’s high EPS is in the middle at $3.50/share.

MS Low Stock Price Forecast (LSPF) of $57.10 implies a Forecast Low P/E of 25.5: less than the above-stated 29.3. MS LSPF is 13.0% less than the default $2.24/share * 29.3 = $65.63 resulting in more conservative zoning. MS LSPF is 23.3% greater than mine, however.

TAR (over 15.0% preferred) is less than MS 15.0%. I don’t want to conclude too much because of the small MS sample, but I believe MOS is at least moderate in the current study if not healthy.

With regard to valuation, PEG is 4.8 and 5.9 per Zacks and my projected P/E, respectively: both extremely high and probably not immune to the EPS confusion. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.6.

ETSY makes for an extremely challenging stock study. It’s close to or in the BUY zone if recent, normalized EPS is used. PAR is less than T-bills if $2.24/share is used with a conservative growth rate. The stock is probably best left at the foot of the barbed wire fence or at least limited to a speculative position size because the case for “up, straight, and parallel” may be weak depending on what EPS data is used.

I have ETSY a BUY under $66/share. A further [10% perhaps] discount may be warranted because of all the uncertainty.

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V Stock Study (4-29-24)

Posted by on May 6, 2024 at 07:22 | Last modified: April 29, 2024 10:16

I recently did a stock study on Visa Inc. (V) with a closing price of $227.96. The previous study is here.

CFRA writes:

     > Visa Inc. (V) operates the world’s largest retail electronic
     > payments network, connecting consumers, businesses, banks,
     > and governments in more than 200 countries and territories,
     > enabling them to use digital currency instead of cash and
     > checks. Visa’s core products include credit, debit, and prepaid
     > cards, and related business services. Its processing
     > infrastructure, VisaNet, processes approximately 750 million
     > transactions per day. Visa’s customers include nearly 15,000
     > financial institutions that issue Visa-branded products and
     > nearly 130 million merchant locations. There are over 4.4
     > billion Visa cards currently in circulation.

This large-size company has grown sales and EPS at annualized rates of 10.7% and 16.4%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for EPS dip in ’16 and sales + EPS dip in ’20.

Over the past decade, PTPM outpaces peer and industry averages while ranging from 53.1% in ’16 (possible outlier) to 66.6% in ’21 with a last-5-year mean of 64.2%. ROE is just ahead of peer and industry averages while increasing from 19.4% (’14) to 43.9% (’23) with a last-5-year mean of 39.6%. Debt-to-Capital is less than peer and industry averages despite increasing from zero (’14-’15) to 34.6% (’23) with a last-5-year mean of 36.3%.

Interest Coverage is 36.2 and Quick Ratio is 1.0. M* categorizes the company “Wide” for economic moat and gives a “Standard” rating for Capital Allocation. Value Line gives an A++ rating for Financial Strength.

With regard to sales:

I am forecasting below both long-term estimates at 9.0% per year.

With regard to EPS:

My 11.0% forecast is just below the long-term-estimate range (mean of five: 13.7%). I am using ’23 EPS of $8.28/share as the initial value rather than 2023 Q2 EPS of $8.95 (annualized). FY ends Sep 30.

My Forecast High P/E is 29.0. Over the past decade, high P/E ranges from 27.3 in ’14 to 44.9 in ’21 with a last-5-year mean of 37.7 and a last-5-year-mean average P/E of 31.7. I am forecasting toward the low end of the range [only ’13 is less].

My Forecast Low P/E is 24.0. Over the past decade, low P/E ranges from 18.9 in ’15 to 31.8 in ’21 with a last-5-year mean of 25.6. The last-10-year median is 24.4. I am forecasting in the lower part of the range.

My Low Stock Price Forecast (LSPF) of $198.70 is default based on $8.28/share initial value. This is 27.6% less than the previous closing price and 8.1% less than the 52-week low.

Over the past decade, Payout Ratio ranges from 18.6% in ’14-’15 to 24.5% in ’20 with a last-5-year mean of 21.8%. I am forecasting below the range at 18.0%.

These inputs land V in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.7%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a large-size company at 6.8%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 577 studies over the past 90 days (my study and 251 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 10.0%, 12.4%, 33.0, 24.8, and 21.7%, respectively. I am lower across the board. Value Line projects an average annual P/E of 28.0, which is lower than MS (28.9) and higher than mine (26.5).

MS high / low EPS are $16.45/ $8.49 versus my $13.95 / $8.28 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is in the middle at $14.85.

MS LSPF of $205.30 implies a Forecast Low P/E of 24.2: less than the above-stated 24.8. MS LSPF is 2.5% less than the default $8.49/share * 24.8 = $210.55 resulting in more conservative zoning. MS LSPF is also 3.2% less than mine.

TAR (over 15.0% preferred) is much lower than MS 13.6%. MOS is robust in the current study.

With regard to valuation, PEG is 1.9 and 2.5 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fairly valued at 1.0.

From reading analyst reports and seeing presentations from the BI community, Visa may be a COST-like juggernaut. Back-up-the-truck opportunities to purchase stock may be slim to none. Should the consistency remain, it wouldn’t hurt to buy, hold, and watch the investment grow. Personally, I will wait until U/D gets closer to 3.0 with the realization it may never get there.

V is a BUY under $250/share. With a forecast high price ~$327, my TAR criterion will be met when the stock drops to ~$164.

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PYPL Stock Study (4-29-24)

Posted by on May 2, 2024 at 07:10 | Last modified: April 29, 2024 09:32

I recently did a stock study on PayPal Holdings Inc. (PYPL) with a closing price of $65.96. The previous study is here.

M* writes:

     > PayPal Holdings, Inc. operates a technology platform that
     > enables digital and mobile payments by consumers and merchants
     > throughout the world. It offers a wide range of payment
     > solutions under the brands: PayPal, PayPal Credit, Venmo, Xoom,
     > Paydiant, and Braintree. Has more than 425 million active
     > users. In 2023, approximately 25.0 billion transactions were
     > completed on its platform. From 2002 to July 2015, PayPal was
     > a wholly-owned subsidiary of eBay.

Over the past nine years, this large-size company has grown sales and EPS at annualized rates of 16.4% and 17.4% [24.6% including $0.31/share in ’14], respectively. Lines are mostly up, straight, and parallel except for EPS dips in ’21 and ’22.

Over the past decade, PTPM trails peer and industry averages while ranging mostly (excluding 23.6% in ’20 and 12.2% in ’22) from 15.0% in ’16 to 18.2% in ’23 with a last-5-year mean of 17.4%. ROE trails peer and industry averages despite increasing from 9.3% in ’15 to 20.9% in ’23 with a last-5-year mean of 17.7%. Debt-to-Capital is less than peer and industry averages despite increasing from 15.2% in ’14 to 31.5% in ’23 with a last-5-year mean of 29.7%.

Quick Ratio is 1.2 and Interest Coverage is 16.6. M* gives a “Standard” rating for Capital Allocation while Value Line gives a B++ (down from A about eight months ago) grade for Financial Strength.

With regard to sales:

I am forecasting below both long-term estimates at 4.0% per year.

With regard to EPS:

My 9.0% annualized forecast is below the long-term-estimate range (mean of five: 13.0%). I will use ’23 EPS of $3.84/share as the initial value. Compared to ’21, $3.84/share is normalized (4.4% growth rate) despite being 83.7% greater YOY.

My Forecast High P/E is 23.0. Since 2015, high P/E increases from 42.5 in ’15 to 93.8 in ’22 before falling to 23.1 in ’23 for a last-5-year mean of 66.5 and a last-5-year-mean average P/E of 49.1. I am forecasting below the entire range.

My Forecast Low P/E is 13.0. Since 2015, low P/E ranges from 13.1 in ’23 to 50.9 in ’21 with a last-5-year mean of 31.7. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $49.90 is default based on initial value of $3.84/share. This is 24.3% less than the previous close and near the 52-week low of $50.30.

These inputs land PYPL in the BUY zone with a U/D ratio of 4.4. Total Annualized Return (TAR) is 15.6%.

PAR (using Forecast Average—not High—P/E) is 10.0%, which is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 222 studies (my study and 90 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 7.5%, 10.0%, 25.0, and 15.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 25.0 is higher than MS (20.0) and higher than mine (18.0).

MS high / low EPS are $6.18 / $3.75 versus my $5.91 / $3.84 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is in the middle at $6.05.

MS LSPF of $49.90 implies a Forecast Low P/E of 13.3: lower than the above-stated 15.0. MS LSPF is 11.3% less than the default $3.75/share * 15.0 = $56.25 resulting in more conservative zoning. MS LSPF is equal to mine.

TAR meets my 15% criterion despite being lower than MS 21.4%. MOS is robust in the current study.

With regard to valuation, PEG is 1.0 and 1.8 per Zacks and my projected P/E, respectively: the latter slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely cheap at 0.35.

The 0.35 reflects severe P/E compression between ’21-’22 and 2023. Compression is mainly due to stock price decrease with ’23 EPS and ’21 EPS roughly equal. Coincidently, analyst estimates are much lower today than my first study nine months ago. Going forward, I believe whether P/E remains compressed or expands consequent to rebounding growth [estimates] will strongly influence where the stock price heads next.

Either way, PYPL is a BUY under $71/share.

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APD Stock Study (4-29-24)

Posted by on April 30, 2024 at 06:46 | Last modified: April 27, 2024 14:35

I recently did a stock study on Air Products and Chemicals Inc. (APD, $236.08). The previous study is here.

M* writes:

     > Since its founding in 1940, Air Products has become one of the
     > leading industrial gas suppliers globally, with operations in
     > 50 countries and 19,000 employees. The company is the largest
     > supplier of hydrogen and helium in the world. It has a unique
     > portfolio serving customers in a number of industries, including
     > chemicals, energy, healthcare, metals, and electronics.

This large-size company has grown sales and earnings at annualized rates of 2.5% and 8.9% over the last 10 years, respectively. Lines are somewhat up and parallel. Sales has a long flat time (from ’14-’21) while EPS dips in ’17 (TCJA?).

Over the last decade, PTPM leads peer and industry averages while trending higher from 13.0% (’14) to 22.9% (’23) with a last-5-year mean of 24.4%. ROE slightly lags peer and industry averages despite increasing from 12.7% (’14) to 16.2% (’23) with a last-5-year mean of 15.9%. Debt-to-Capital is less than peer and industry averages while ranging from 23.1% in ’19 to 46.8% in ’16 with a last-5-year mean of 36.8%.

Quick Ratio is 1.5 and Interest Coverage is 16.4. Value Line gives an “A++” for Financial Strength. M* gives a Capital Allocation rating of “Exemplary” and has recently upgraded the company to “Wide” for Economic Moat.

With regard to sales growth:

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

My 6.0% per year forecast is below the range of five long-term estimates (mean 9.3%). My initial value will be ’23 EPS of $10.30/share rather than 2024 Q1 EPS of $10.45 (annualized).

My Forecast High P/E is 24.0. Over the last 10 years, high P/E generally trends higher from 27.7 (’14) to 31.9 (’23) with a last-5-year mean of 33.0 and a last-5-year-mean average P/E of 27.3. I am projecting near the bottom of the range (21.0 in ’16).

My Forecast Low P/E is 18.0. Over the last 10 years, low P/E ranges from 15.3 in ’16 to 26.9 in ’21 with a last-5-year mean of 21.7. I am forecasting near the bottom of the range (only ’16 is less).

My Low Stock Price Forecast (LSPF) is the default value of $185.40 based on $10.30 initial value. This is 21.5% below the previous closing price and 12.6% less than the 52-week low.

Over the last decade, Payout Ratio ranges from 48.8% (’16) to 71.9% (’17) with a last-5-year mean of 62%. I am forecasting below the range at 48.0%.

These inputs land APD in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 9.0%.

PAR (using Forecast Average—not High—P/E) of 6.4% is less than I seek for a large company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 115 studies (my study and 47 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 6.4%, 8.9%, 28.0, 21.1, and 62.2%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 23.5 is lower than MS (24.6) and higher than mine (21.0).

MS high / low EPS are $16.07 / $10.40 versus my $13.78 / $10.30 (per share). My high EPS range is lower due to a lower growth rate. Value Line’s high EPS is greater than both at $17.00.

MS LSPF of $208.30 implies a Forecast Low P/E of 20.0: lower than the above-stated 21.1. MS LSPF is 5.1% less than the default $6.28/share * 10.3 = $219.44 resulting in more conservative zoning. MS LSPF is 12.4% greater than mine, however.

TAR (over 15.0% preferred) is much lower than MS 16.1%. MOS is robust in the current study.

With regard to valuation, PEG is 2.6 and 3.6 per Zacks and my projected P/E, respectively: both significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit cheap at 0.83.

APD is a BUY under $221. With a forecast high price ~$330, my TAR criterion won’t be met until ~$165/share. With other compelling things about the company and stock, I probably would not wait that long.

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CVS Stock Study (4-26-24)

Posted by on April 26, 2024 at 13:43 | Last modified: April 27, 2024 13:45

I recently did a stock study on CVS Health Corp. (CVS) with a closing price of $67.33. The previous study is here.

M* writes:

     > CVS Health offers a diverse set of healthcare services. Its
     > roots are in its retail pharmacy operations, where it operates
     > over 9,000 stores primarily in the U.S. CVS is also the largest
     > pharmacy benefit manager (acquired through Caremark),
     > processing over 2 billion adjusted claims annually. It also
     > operates a top-tier health insurer (acquired through Aetna)
     > where it serves about 26 million medical members. The
     > company’s recent acquisition of Oak Street adds primary
     > care services to the mix, which could have significant
     > synergies with all its existing business lines.

This mega-size (over $50B annual revenue) company has grown sales and EPS at annualized rates of 11.2% and 1.3%, respectively, over the last decade. The latter, which excludes a loss in ’18 (goodwill impairment charges), is hurt by non-recurring events in ’22 as mentioned in the 10-K:

     > Operating income decreased $5.4 billion, or 41.3%, in 2022
     > compared to 2021. The decrease in operating income was
     > primarily driven by the $5.8 billion of opioid litigation charges
     > and declines in the Retail/LTC segment, which included a $2.5
     > billion loss on assets held for sale related to the write-down
     > of the Company’s Omnicare® long-term care business.

Historical EPS growth excluding ’22 is 4.3%. Sales are up and mostly straight while EPS are down in ’18 and ’22.

Over the past decade, PTPM lags peer and industry averages while trending lower from 5.5% (’14) to 3.1% (’23) with a last-5-year mean of 3.1%. ROE also lags peer and industry averages while ranging from 5.8% (’22; ’18 excluded) to 18.8% (’17) with a last-5-year mean of 9.7%. Debt-to-Capital is higher than peer and industry averages while increasing from 25.4% (’14) to 50.9% (’23) with a last-5-year mean of 52.9%.

Current Ratio is 0.86 while Interest Coverage is 5.2. Value Line assigns an “A” rating for Financial Strength (down from “A+” one year ago), and M* assigns “Standard” for Capital Allocation.

With regard to sales:

I am forecasting below the range at 1.0% per year.

With regard to EPS:

I am forecasting below the long-term-estimate range (mean of five using M* 6.0% rather than 8.3%: 5.4%) at 2.0% per year. I will use ’23 EPS of $6.47/share as the initial value. Although up 100% YOY, ’23 EPS only represents a 4.3% annualized increase since ’22. This is normalized.

My Forecast High P/E is 13.0. Excluding ’18 (NMF) and ’22 (upside outlier 35.4), high P/E over the last 10 years trends down, ranging from 24.9 (’14) to 13.1 (’17) with a last-5-year average of 15.3. The last-5-year-mean average P/E is 12.8. I am forecasting below the high P/E range.

My Forecast Low P/E is 8.0. Excluding ’18 (NMF) and ’22 (upside outlier 27.5), low P/E over the last 10 years trends down, ranging from 17.6 (’15) to 9.5 (’20) with a last-5-year average of 10.3. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $51.80 based on $6.47/share initial value. This is 23.1% less than the previous close and 19.6% less than the 52-week low.

Payout Ratio over the last 10 years ranges from 27.8% in ’14 to 39.4% in ’19 excluding ’18 (NMF) and ’22 (upside outlier at 70.1%). The last-5-year mean is 36.7%. I am forecasting below the range at 26.0%.

These inputs land CVS in the HOLD zone with a U/D ratio of 1.4. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) of 4.5% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on 169 studies (my study and 52 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 4.4%, 7.2%, 15.5, 10.3, and 40.0%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 10.0 is lower than MS (12.9) and lower than mine (10.5).

MS high / low EPS are $9.29 / $6.28 versus my $7.14 / $6.47 (per share). My high EPS range is lower due to a lower growth rate. Value Line’s high EPS is greater than both at $11.25.

MS LSPF of $62.90 implies a Forecast Low P/E of 10.0: lower than the above-stated 10.3. MS LSPF is 2.8% less than the default $6.28/share * 10.3 = $64.68 resulting in more conservative zoning. MS LSPF is 21.4% greater than mine, however.

TAR (over 15.0% preferred) is much lower than MS 17.2%. MOS is robust in the current study.

With regard to valuation, PEG is 0.9 and 5.1 per Zacks and my projected P/E, respectively: the latter significantly overvalued due to my 2.0% growth-rate denominator. Relative Value [(current P/E) / 5-year-mean average P/E] is a bit cheap at 0.8.

From what I gather, CVS has been in the BI Top 100 for many years. Manifest Investing also continues to be bullish despite waiting years to see management’s lofty promises come to fruition. Per M*, some of these promises may finally be ending:

     > The Aetna merger and recent Oak Street acquisition pushed off
     > durable double-digit earnings growth for nearly a decade, which
     > has been a source of frustration for investors still waiting for
     > that industry standard growth rate. Management has finally admitted
     > defeat on this standard and recently announced a significantly lower
     > profit growth goal for the long run that recognizes the challenges
     > the firm faces particularly in the retail store operations.

CVS is a BUY under $62. With a forecast high price ~$93, my TAR criterion won’t be met until ~$47/share. This can increase with hopes of higher earnings growth [projections].

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YETI Stock Study (4-25-24)

Posted by on April 24, 2024 at 09:36 | Last modified: April 25, 2024 10:26

I recently did a stock study on YETI Holdings (YETI, $35.67). Previous studies are here, here, and here.

M* writes:

     > YETI Holdings Inc is a designer, marketer, and distributor of
     > premium products for the outdoor and recreation market sold under
     > the YETI brand. The company offers products including coolers and
     > equipment, drinkware, and other accessories. Its trademark products
     > include YETI Tundra, Hopper, YETI TANK, Rambler, Colster, Rambler
     > among others. The company distributes products through wholesale
     > channels and through direct-to-consumer, or DTC, channels.

Since 2018 when this medium-size company began to be publicly traded, sales and earnings have grown at annualized rates of 17.7% and 22.8%, respectively. Lines are up and somewhat parallel due to EPS dips in ’19 and ’22 (latter due to operational snafus including recall of defective items and inflation-induced demand destruction per Value Line). PTPM leads peer and industry averages despite trending sideways (range 7.3% in ’22 to 19.0% in ’21) with a last-5-year mean of 13.2%.

Over the last five years, ROE generally leads peer and industry averages despite falling from 57.3% in ’19 to 26.4% in ’23 with a mean of 43.4%. Debt-to-Capital is less than peer and industry averages in falling from 91.9% in ’18 to 19.6% in ’23 with a last-5-year mean of 36.4%.

Quick Ratio is 1.34, and M* lists no Interest Coverage ratio. I usually assume this to a good thing (very large to infinity), but it can’t hurt to verify. Simply Wall Street writes:

     > YETI Holdings has a total shareholder equity of $723.6M and total
     > debt of $79.4M, which brings its debt-to-equity ratio to 11%. Its
     > total assets and total liabilities are $1.3B and $573.6M
     > respectively… EBIT is $225.5M making its interest coverage
     > ratio 239.3. It has cash and short-term investments of $439.0M.

Assumption confirmed.

Value Line gives a “B” rating (down from “B+” six months ago) for Financial Strength despite writing in its analyst note: “the company is on solid footing financially for those on the conservative side.” The latter sounds encouraging while a “B” rating is as low as I’ll go. I don’t love the apparent contradiction.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

I am forecasting below the long-term-estimate range (mean of four: 10.8%) at 8.0% per year. My initial value will be ’23 EPS of $1.94/share that represents an 88% YOY increase. Although I don’t like to project forward from an excessive high, being 19% lower than ’21 EPS makes it normalized.

My Forecast High P/E is 28.0. High P/E falls from 31.1 in ’18 to 27.9 in ’23 (interim high 80.6 in ’22) with a last-5-year mean of 52.4 and a last-5-year-mean average P/E of 36.6. I am forecasting near the bottom of the range (only ’23 is lower).

My Forecast Low P/E is 16.0. Low P/E falls from 18.0 in ’18 to 17.9 in ’23 (interim low 8.6 in ’20) with a last-5-year mean of 20.8. I am forecasting below the latter (’23 being the second-lowest yearly value at 17.9).

My Low Stock Price Forecast (LSPF) of $28.30 is default based on initial value of $1.94/share. This is 20.7% less than the previous close and 18.4% less than the 52-week low.

These inputs land YETI in the BUY zone with a U/D ratio of 5.6. Total Annualized Return (TAR) is 16.6%.

PAR (using Forecast Average—not High—P/E) of 11.4% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 32 studies (my study and 9 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.9%, 10.8%, 30.0, and 18.9, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (24.5) and lower than mine (22.0).

MS high / low EPS are $3.27 / $1.95 versus my $2.85 / $1.77 (per share). My high EPS range is lower due to a lower growth rate. Value Line’s high EPS is $4.00: much higher than both.

MS LSPF of $27.90 implies a Forecast Low P/E of 14.3: lower than the above-stated 18.9. MS LSPF is 24.3% less than the default $1.95/share * 18.9 = $36.86 [INVALID on today’s date] resulting in more conservative zoning. MS LSPF is also 1.4% less than mine.

TAR (over 15.0% preferred) is lower than MS 20.3%. Despite the small MS sample size, bringing in Value Line and other analyst estimates compels me to evaluate MOS as robust in the current study.

With regard to valuation, PEG is 1.3 and 2.1 per Zacks and my projected P/E, respectively: the latter overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is quite cheap at 0.5.

The ’23 EPS rebound from an excursive ’22 makes for a much easier SSG. No fancy manipulation necessary to get numbers that seem reasonable and no wild confusion from MS masses.

YETI is a BUY under $40 that meets my 15% TAR criterion right now (forecast high price $77).

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NFLX Stock Study (4-24-24)

Posted by on April 22, 2024 at 10:08 | Last modified: April 24, 2024 10:40

I recently did a stock study on Netflix Inc. (NFLX, $577.75). Previous studies are here, here, here, and here.

M* writes:

     > Netflix’s relatively simple business model involves only one business,
     > its streaming service. It has the biggest television entertainment
     > subscriber base in both the US and the collective international
     > market, with almost 250 million subscribers globally. Netflix has
     > exposure to nearly the entire global population outside of China. The
     > firm has traditionally avoided live programming or sports content,
     > instead focusing on on-demand access to episodic television, movies,
     > and documentaries. The firm recently began introducing ad-supported
     > subscription plans, giving the firm exposure to the advertising
     > market in addition to the subscription fees that have historically
     > accounted for nearly all its revenue.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 24.1% and 59.9%, respectively. Lines are mostly up, narrowing, and parallel except for EPS declines in ’15 and ’22. PTPM lags peer and industry averages despite trending higher from 6.3% (’14) to 18.4% (’22) with a last-5-year mean of 15.5%.

Also over the past decade, ROE lags peer and industry averages despite trending up from 15.1% (’14) to 23.5% (’23) with a last-5-year mean of 26.0%. Debt-to-Capital is roughly even with peer and industry averages while increasing from 32.6% (’14) to 66.4% (’18) then reversing lower to 41.4% (’23) for a last-5-year mean of 51.5%.

Interest Coverage and Quick Ratio are 11.8 and 0.9, respectively. M* rates the company an “Exemplary” rating for Capital Allocation and “Narrow” for economic moat while Value Line gives an “A” rating for Financial Strength.

With regard to sales growth:

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

I am forecasting just under the long-term-estimate range (mean of five: 22.8%) at 13.0% per year. I will use ’24 EPS of $12.03/share as the initial value rather than 2024 Q1 $14.41/share (annualized).

My Forecast High P/E is 35.0. Over the past decade, high P/E decreases from 113 (’14) to 41.6 (’23) with a last-5-year mean of 70.6 and a last-5-year-mean average P/E of 54.5. At some point, I expect P/E to fall back to earth. For now, I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 30.0. Over the past decade, low P/E decreases from 69.3 (’14) to 23.7 (’23) with a last-5-year mean of 38.3. Again, at some point I expect P/E to fall back to earth and we may already be starting to see this with a current P/E of 40.1. I am forecasting toward the bottom of the range [only ’23 and ’22 (16.4) are lower].

My Low Stock Price Forecast (LSPF) is $360.90: default based on $9.39/share initial value. This is 37.5% less than the previous close and 12.6% less than the 52-week low.

These inputs land NFLX in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 6.1%.

PAR (using Forecast Average—not High—P/E) of 4.5% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead (still lower than I seek for a large company).

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 146 studies (my study and 28 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 11.6%, 14.7%, 50.0, and 32.6. I am lower across the board. Value Line’s projected average annual P/E of 39.0 is lower than MS (41.3) and higher than mine (32.5).

MS high / low EPS are $24.20 / $11.82 versus my $22.16 / $12.03 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS is $22.75. I am lowest of the three.

MS LSPF of $330.30 implies a Forecast Low P/E of 35.6: more than the above-stated 32.6. MS LSPF is 14.3% less than the default $11.82/share * 32.6 = $385.33, which results in more conservative zoning. MS LSPF is also 8.5% less than mine.

TAR (over 15.0% preferred) is much less than the 14.8% from MS. MOS seems robust in the current study.

With regard to valuation, PEG is 1.4 and 2.7 per Zacks and my projected P/E, respectively: the latter being significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.74.

NFLX is a BUY under $464. With a forecast high price of $775.80, TAR should meet my 15% criterion around $388/share. I am not surprised to see a stock up 75% in the past 12 months far extended from a buy point.

Full disclosure: I currently own NFLX shares.

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MBUU Stock Study (4-23-24)

Posted by on April 18, 2024 at 11:52 | Last modified: April 23, 2024 12:47

I recently did a stock study on Malibu Boats Inc. (MBUU, $34.07). Previous studies are here, here, and here.

M* writes:

     > Malibu Boats is a leading designer and manufacturer of power
     > boats in the United States. It is the market leader in
     > performance sport boats, sold under its Malibu and Axis brands.
     > It acquired Cobalt Boats, a leading producer of sterndrive
     > boats in the U.S. in the 24-foot to 29-foot segment, and
     > Pursuit Boats, which makes high-end offshore and outboard
     > motorboats in 2018. In 2021, it purchased Maverick Boat Group,
     > a leading seller of flat fishing boats, with exposure to bay,
     > dual-console, and center-console boats. Malibu has also
     > expanded into boat trailers and accessories, and in 2020
     > began producing its own engines (Monsoon) for its performance
     > sport boats. Malibu’s target market includes a wide range of
     > water enthusiasts who embrace the active outdoor lifestyle.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 26.6% and 30.5% [86.0% including 2014 EPS of -$0.42], respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’20 (FY ends Jun 30) and EPS declines in ’18, ’20, and ’23. PTPM is higher than peer and industry averages, ranging from 10.2% in ’23 (excluding the loss from ’14) to 18.0% in ’18 with a last-5-year mean of 13.9%.

Over the past five years, ROE is slightly better than peer and industry averages despite falling from 35.6% in ’19 to 16.7% in ’23 with a mean of 28.6%. Debt-to-Capital is lower than peer and industry averages by falling from 35.7% in ’19 to 0.4% in ’23 with a last-5-year mean of 21.7%.

Interest Coverage is 29.1 and Quick Ratio is 0.60. M* gives a “Standard” for Capital Allocation while Value Line assigns a B+ rating for Financial Strength. M* categorizes the company with a “Narrow” economic moat.

With regard to sales growth:

I am forecasting zero growth: less than the mean of both long-term estimates.

With regard to earnings growth:

I have asked for clarification about the M* long-term EPS growth projection. While SSGPlus states this to be 8.9%, the “forecast” box defaults to 4%. Interestingly, long-term EPS calculated from 2023 EPS with a 4.0% growth rate is about equal to that calculated from Q2 2024 ($3.12/share annualized) with a 14.2% growth rate. I wonder if YF gets 15.0% this way.

The three long-term estimates have a range of 21.7% (suggesting high uncertainty) and mean of 5.7%. I am forecasting zero growth and using ’23 EPS of $5.06/share as the initial value.

My Forecast High P/E is 11.0. Since 2015, high P/E falls from 26.0 (34.2 in ’18 excluded) to 14.0 (’23) with a last-5-year mean of 16.3. The last-5-year-mean average P/E is 12.2. I am forecasting below the range [lowest is 11.5 in ’22].

My Forecast Low P/E is 5.0. Since 2015, low P/E generally trends down from 17.4 to 9.2 (’23) with a last-5-year mean of 8.1. I am forecasting below the range [lowest is 6.1 in ’20].

My Low Stock Price Forecast (LSPF) of $25.30 is default based on $5.06/share initial value. This is 25.7% less than the previous close and 25.1% less than the 52-week low.

These inputs land MBUU in the HOLD zone with an U/D ratio of 2.4. Total Annualized Return (TAR) is 10.3%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 3.5%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 47 studies (18 outliers including mine excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 3.0%, 8.9%, 13.9, and 8.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 10.0 is lower than MS (11.0) and higher than mine (8.0).

MS high / low EPS are $6.37 / $3.12 versus my $5.06 / $5.06 (per share). Value Line’s high EPS is $6.50, which makes mine lowest of the three. My forecast EPS [average] is higher than the MS range (mean $4.75/share), however.

MS LSPF of $26.50 implies a Forecast Low P/E of 8.5: higher than the above-stated 8.0. MS LSPF is 6.2% more than the default $3.12/share * 8.0 = $24.96 resulting in more aggressive zoning. MS LSPF is also 4.7% greater than mine.

My TAR (over 15.0% preferred) is less than the 13.5% from MS. MOS seems robust in the current study.

Relative Value [(current P/E) / 5-year-mean average P/E] per M* is a bit low at 0.9.

Analyst commentary on MBUU remains positive despite an unfavorable macroeconomic backdrop. Decreased demand for luxury goods is a current reality, and both Value Line and M* imply corporate execution is not to blame. Despite some confusion over M* long-term EPS forecast (one of only three such estimates available), I am discounting the growth forecast to zero and still landing close to the BUY zone. I’d still like a bit more in terms of upside surprises to justify a higher TAR.

MBUU is a BUY under $32. With a forecast high price of $55.70, TAR should meet my 15% criterion just under $28/share.

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ELF Stock Study (4-22-24)

Posted by on April 16, 2024 at 14:10 | Last modified: April 22, 2024 22:34

I recently did a stock study on e.l.f. Beauty, Inc. (ELF) with a previous closing price of $156.73.

M* writes:

     > e.l.f. Beauty Inc is a cosmetic company based in the US. The company
     > offers cosmetic accessories for women which include eyeliner, mascara,
     > false eyelashes, lipstick, the foundation for the face, moisturizer,
     > cleanser, and other tools through its stores and e-commerce channels.
     > The products that the company sells are marketed under the e.l.f.
     > Cosmetics, W3LL PEOPLE and Keys Soulcare brands. It carries out the
     > sales within the US and internationally, out of which maximum
     > revenue is generated from the US.

This past weekend, I attended a ClimbUSA.org (Communities Learning to Invest and Mobilize in Business) CBIE (Community Based Investment Enterprises) Spring Cohort webinar. I’m still new to the organization, but they’re involved with teaching kids and adults about investing, investment clubs, and stock analysis using the BetterInvesting approach. The instruction and desire to learn is quite inspirational.

One of the group leaders presented ELF, and I found it interesting because her SSG produced a U/D of 7.5 despite Value Line’s advice that “conservative investors may want to take profits here.”

What will the numbers have to say to me?

I first need to address a data-labeling issue. The ELF FY ends 3/31 with its next earnings date May 22, 2024. Complete 2024 annual results should be available at that time. Since the BI website currently shows data through 2022, I need to increment the year label by one when referencing the website. This applies to Value Line as well.

I also need to exclude some EPS data because raw visual analysis may not clear the barbed wire fence. The website indicates public trading beginning with 2017 (2016 + 1). I will exclude ’15 and ’16. I will also exclude the outlier ’17 EPS (-$39.47/share) and the sudden drop (to $0.12/share) in ’21 due to COVID.

With the data now smoothed, since ’18 this small company has grown sales and EPS at annualized rates of 16.2% and 10.9%, respectively. Lines are somewhat up, straight, and parallel with a sales and EPS dip in ’19. It’s concerning that 2018’s $0.68/share EPS is not eclipsed until ’23, but the history is somewhat brief.

Since ’18, PTPM trails the industry and leads peers while ranging from 6.5% (’22) to 11.1% (’23) with a last-5-year mean of 8.2%. ROE is 18.9% in ’18 and 15.5% in ’23 with a last-5-year mean of 9.3%. Debt-to-Capital is less than the industry and recently below peer averages in decreasing from 44.6% (’18) to 16.7% (’23) with a last-5-year mean of 31.6%.

Current Ratio is 1.5 and Quick Ratio is 0.6. Interest Coverage is a solid 30. Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

I am forecasting below the entire range at 20.0% per year.

With regard to earnings growth:

I have data duplication concerns. YF and Zacks have the same YOY sales forecasts to the thousandths place (0.1%) given 15 and 9 analysts, respectively. Three of four long-term EPS projections are 35.8%. Analysts’ independent arrival at those projections would be more robust than one analysis being duplicated by many sources, but the former is unlikely to match with such precision. I will therefore count 35.8% just once for a mean long-term growth estimate of 28.3%.

My 20.0% EPS forecast is very high but below the analysts’ [even higher] range due largely to these duplication concerns. My initial value is the 2024 Q3 (annualized) $2.26/share (rather than ’23 EPS of $1.11).

My Forecast High P/E is 35.0. Since ’18, high P/E increases from 45.7 to 75.6 (’23) with a last-5-year mean of 71.7 (106 including ’21) and a last-5-year-mean average P/E of 54.4. I am forecasting at the upper end of my comfort zone.

My Forecast Low P/E is 25.0. Since ’18, low P/E ranges from 18.5 in ’23 to 54.2 in ’22 with a last-5-year mean of 29.6 (37.0 including ’21). I am forecasting just above the 24.1 median (25.7 including ’21).

My Low Stock Price Forecast (LSPF) is $100/share. The default based on $2.26/share is $56.50: 64.0% less than the previous close and 32.6% less than the 52-week low. This may be unreasonably low. I would not consider the 52-week low to be unreasonably low unless ELF is now a qualitative different company after acquiring Naturium. Value Line says Naturium “experienced exceptional growth, with net sales increasing at an approximately 80% compound annual growth rate over the last two years, and $90 million of net sales were expected this year.” With ELF posting $579M in ’23 revenue, the acquired revenue amounts to ~16% bump: not a qualitative change in this analyst’s view. Just to further preclude the possibility of being extreme, I have raised my LSPF from 52-week low to triple digits.

These inputs land ELF in the HOLD zone with a U/D ratio of 0.7. The Total Annualized Return (TAR) is 4.7%.

PAR (using Forecast Average—not High—P/E) of 1.5% is less than the current yield on T-bills. Even if a healthy margin of safety (MOS) anchors this study to justify TAR, T-bills offer a higher risk-free return.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 76 studies over the past 90 days (my study and 23 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 20.0%, 19.3%, 68.6, and 30.0. My P/E range is lower but my growth forecasts are not. Value Line projects an average annual P/E of 40.0, which is lower than MS (48.8) and higher than mine (30.0).

MS high/low EPS is $5.14/$2.23 versus my $5.62/$2.26 (per share). My high EPS is due to a higher growth rate. Value Line projects a high P/E of $5.15/share.

MS LSPF of $67.80 implies a Forecast Low P/E of 30.4: in-line with the above-stated 30.0. MS default LSPF is 32.2% less than mine: $2.23/share * 30.0 = $66.90. This makes for more conservative zoning.

My TAR (over 15.0% preferred) is much less than MS 13.8%. Despite using a much higher LSPF, MOS seems robust in the current study due to my lower forecast P/E range.

With regard to valuation, PEG is 1.2 and 2.9 per Zacks and my projected P/E: fairly valued and overvalued, respectively. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is expensive at 1.4.

My overall takeaway is two-fold with the first point being no surprise to see a stock up 177% in the past year as far extended from the BUY range as ELF is today.

Second, I am personally very reluctant to entertain a sky-high P/E several years into the future even though it may cause me to miss the occasional NVDA. Such P/E levels are “priced to perfection” with one misstep being all it takes for a subsequent fall back to earth. The 7.5 U/D referenced at the top coincides with a Forecast Low P/E of 60.

I would look to re-evaluate ELF under $125/share. With a forecast high price over $196, TAR should meet my 15% criterion around $98/share.

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