GPN Stock Study (2-13-23)

I recently* did a stock study on Global Payments Inc. (GPN) with a closing price of $117.88.

CFRA writes:

     > Global Payments (GPN) provides payment processing and software
     > solutions globally through a variety of distribution channels,
     > which enable customers to accept card, electronic, check, and
     > digital-based payments. Specific offerings include
     > authorization, settlement, funding, customer support,
     > chargeback, security, and billing services.

This medium-sized company has grown sales and earnings at annualized rates of 14.5% and 6.5% over the last 10 years, respectively. Visual inspection is not great. Revenue data is [missing for ’16 and] down in ’18 while EPS data is [missing for ’16 and] down in ’15, ’18, ’19, and ’20. Q2 and Q3 2022 EPS have declined sharply. [Stock] Price bars in ’17 and ’22 overlap, which represents several years without significant appreciation. PTPM, which averaged 14.6% from ’12-’14, has averaged 11.5% over the last five years. Although apparently in decline, this beats peer and industry averages.

ROE has averaged 4% over the last five years, which seems low. The industry averages 6%, though, while peers average 6.8% (both excluding ’20, which is -161% or worse). Debt-to-Capital, which ranged from 51.1% (’12) to 75.5% (’14) between ’12-’18, has averaged 28% over the last three years. The latter is less than peer and industry averages. Quick Ratio and Interest Coverage are a concerning 0.53 and 1.4, respectively.

The fact that so many analysts are covering this company gives me some [hopefully not illusory] assurance about its liquidity. Aside from all the analysts represented below, M* says the balance sheet is sound. Value Line gives a B++ financial strength grade and says “it should continue to easily meet its various obligations.” CFRA says expected FCF generation ($2.2B and $2.5B in ’22 and ’23, respectively) should allow leverage to return to historical levels by the end of ’23.

I assume long-term annualized sales growth of 8% based on the following:

• CNN Business projects 4.9% YOY growth and 6.6% per year for ’22 and ’21-’23, respectively (based on 27 analysts).
• YF projects YOY 6.3% and 9.2% growth for ’23 and ’24, respectively (24 analysts).
• Zacks projects YOY growth of 6.6% and 2.6% for ’23 and ’24, respectively (7).
• Value Line projects annualized growth of 8.3% from ’21-’26.
• CFRA projects 3.9% YOY contraction for ’23.
• M* provides a 2-year ACE of 1.6% growth and 8% growth per year through ’26 (analyst note).

I assume long-term annualized EPS growth of 10% based on the following:

• CNN Business projects 10.4% YOY and 12.5% per year for ’22 and ’21-’23, respectively (based on 27 analysts), along with 5-year annualized growth of 14.8%.
• MarketWatch projects 12.5% and 11.5% per year for ’22-’24 and ’22-’25, respectively (31 analysts).
• Nasdaq.com projects 11.8% YOY growth for ’24 (10 and 2 analysts for ’23 and ’24).
• Seeking Alpha projects 4-year annualized growth of 17%.
• YF projects YOY 11.4% and 14.5% for ’23 and ’24, respectively (24), along with 5-year annualized growth of 15.1%.
• Zacks projects YOY 9.9% and 13.6% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 15.8%.
• Value Line projects annualized growth of 13.7% from ’21-’26.
• CFRA projects 14.5% YOY for ’23 and 3-year projected annualized growth of 15%.
• M* provides a long-term estimate of 16.6%.

My forecast is below the range of six long-term estimates (mean 15.5%).

As Q2 and Q3 of ’22 were atypically soft ($0.13 and $0.17/share, respectively), I will not originate the earnings projection from there. Given trendline ($2.90) or ’21 ($3.29), I choose the former (more conservative).

My Forecast High P/E is 35. Over the last 10 years, high P/E has trended up from 18.6 (’12) to 67.1 (’21) excluding upside outliers of 85.8 and 110.6 in ’19 and ’20. The last-5-year average (excluding outliers) is 49.2.

My Forecast Low P/E is 28. Over the last 10 years, low P/E has trended up from 14.3 (’12) to 35.5 (’21). ’19 and ’20 were high at 45.6 and 54.1, but not to an extreme. The last-5-year average is 38.3.

My Low Stock Price Forecast is $92.10. In projecting from the trendline, I also need to manually override EPS (to $2.90) rather than defaulting to TTM ($0.17) for calculation of the Low Stock Price Forecast. This is 21.9% below previous close, equal to the 52-week low, and below both ’20 and ’21 low stock prices.

Payout Ratio was below 3% in ’18 and earlier before averaging 25.8% over the last three years. I will assume 10% to be conservative.

All this computes to an U/D ratio of 2.6, which makes GPN a HOLD. The Total Annualized Return is 9.8%, but PAR (using Forecast Average, not High, P/E) is 7.5%: less than I want out of a medium-sized company.

To better interpret this, I use Member Sentiment (MS) to assess the study’s margin of safety (MOS). Out of 50 studies over the past 90 days (my own and two others with invalid low prices excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.3%, 22.2%, 44.4, 29, and 13.9%, respectively. My inputs are all lower. Value Line projects an average annual P/E of 40, which is higher than MS (36.7) and me (31.5). MOS seems robust here.

MS has an extreme Low Stock Price Forecast of $63.83. This is over 30% lower than mine and below the 2017 low price. Eleven studies are in the single digits, which leaves me scratching my head. From the lowest price in the last three months to now, GPN has rallied 26.5%. This may explain some of the forecasts, but not those under $30/share.

Excluding these 15 studies, I get an MS Low Stock Price Forecast of $87.42, which seems more reasonable. This would equate to a Forecast Low P/E of 26.5 in my study. I will stick with my $92.10 because my forecast P/E range is low enough already.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

TGT Stock Study (2-12-23)

I recently* did a stock study on Target Corp. (TGT) with a closing price of $170.02.

Value Line writes:

     > Target Corp.’s operations consisted of 1,926 discount stores,
     > of which 1,528 were owned, in the U.S., mostly in Cal., Tex.,
     > and Fla (as of 1/29/22)… Sales by category in fiscal ’21:
     > beauty/household, 26%; hardlines, 18%; apparel/accessories,
     > 17%; food, 20%; and home furnish., 19%.

This mega-sized company (annual revenue > $50B) has grown sales and earnings 3.4% and 13.1% per year over the last 10 years, respectively. Lines are mostly up except for dips in sales (’16) and EPS (’13 and ’16). PTPM over the last decade has ranged from 4.3% (’14) to 8.4% (’21) with a last-5-year average of 5.9%. This is higher than peer and industry averages.

ROE has trended up over the last 10 years from 18% (’12) to 32.5% in ’20 (’21 was an upside outlier at 48.1%) with a last 5-year average (excluding ’21) of 28.1%. This is higher than peer and industry averages. Debt-to-Capital has increased from 49.4% (’12) to 56.2% (’21) with a last-5-year average of 53.1%. This is also higher than peer and industry averages. Current Ratio is a suboptimal 0.86, but Interest Coverage is 10.8. M* assigns an Exemplary capital allocation rating while Value Line gives a B++ grade for financial strength.

I assume long-term annualized sales growth of 2% based on the following:

• CNN Business projects 2.5% YOY and 2.2% per year for ’22 and ’21-’23, respectively (based on 31 analysts).
• YF projects YOY 2.3% and 2.2% for ’23 and ’24, respectively (29 analysts).
• Zacks projects YOY 2.3% and 2.8% for ’23 and ’24, respectively (12).
• Value Line projects 3.8% annualized growth from ’21-’26 (11% from ’20-’26).
• CFRA projects growth of 2.8% YOY and 2.3% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 2.1% and a 10-year estimate of 3% in its analyst note.

My estimate is just below all of the above.

I assume long-term annualized EPS growth of 2% based on the following:

• CNN Business projects a 59.3% YOY contraction and 17% contraction per year for ’22 and ’21-’23, respectively (based on 31 analysts), along with 5-year annualized contraction of 4.2%.
• MarketWatch projects annualized contraction of 15.9% and 5.5% for ’22-’24 and ’22-’25, respectively (36 analysts).
• Nasdaq.com projects annualized growth of 42.6% and 36.5% for ’23-’25 and ’23-’26, respectively [16, 10, and 2 analysts for ’23, ’25, and ’26].
• Seeking Alpha projects 5-year annualized growth of 10.5%.
• YF projects 59.1% YOY contraction and 70% YOY growth for ’23 and ’24, respectively (33), along with 5-year annualized contraction of 4.9%.
• Zacks projects 59.2% YOY contraction and 71.4% YOY growth for ’23 and ’24, respectively (16), along with 5-year annualized growth of 9.9%.
• Value Line projects annualized growth of 5.8% from ’21-’26.
• CFRA projects 56.8% YOY contraction and 15.9% contraction per year for ’23 and ’22-’24, respectively, and 1% growth per year from ’21-‘24%.
• M* projects long-term annualized growth of 4.8%.

I am projecting below the average [of six] long-term estimate[s] (3.6%).

I will override to project earnings from the last annual data point rather than Q3 ’22. Analyst consensus expects a big rebound in earnings for ’23, which is suggestive of a one-year anomaly due to the macroeconomic factors rather than maturation in business cycle. The latter has already occurred for this company.

The ideal situation would be to project from the same point analysts are using for their calculations, but because this is not explicitly disclosed, I have to do my best to work around it. Here, projection from the last quarterly data point or EPS trendline makes no sense because Forecast High Stock Price would be at or below the current stock price.

My Forecast High P/E is 17. Over the last 10 years, high P/E has ranged from 14.6 (’12) to 23.9 (’13) with a last-5-year average of 18.8.

My Forecast Low P/E is 10. Over the last 10 years low P/E has ranged from 9.1 (’17) to 18.2 (’13). The last-5-year average is 10.6. As suggested above, I think Target is a mature company so I don’t expect the kind of P/E compression that might be seen with a younger, more explosive growth company.

I’ve realized that I need to be very careful with the website and future EPS projection. Overriding the base on the estimated EPS growth rate screen leaves TTM EPS for the Low Stock Price Forecast. The latter may require changing as well.

My Low Stock Price Forecast is $137. The default value would be $141. This corresponds to ’21 earnings of $14.10/share and assumes 0% growth for the next five years. With the 52-week low price at $137.2, I’m overriding with $13.70/share to [roughly] match. $137 is 19.4% below the previous close.

Over the last 10 years, Payout Ratio has ranged from 22.4% (’21) to 51.5% (’13). The last-5-year average is 37.2%. I am assuming 31%.

All this computes to an U/D ratio of 2.9, which makes TGT a HOLD. The Total Annualized Return is 11.1%, and PAR (using Forecast Average, not High, P/E) is 6.6%, which is less than desired. Can I convince myself that the inherent margin of safety (MOS) in this study allows for a good chance of realizing Forecast High P/E?

To answer this, I compare my inputs with the larger sample size of Member Sentiment (MS). Out of 192 studies over the past 90 days (my own and four others with projected low prices above last closing price excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 4.7%, 7.8%, 18.4, 11.3, and 38.4%, respectively. My inputs—especially the growth rates—are all lower. Value Line projects an average annual P/E of 15, which is barely higher than MS (14.9) and higher than mine (13.5). All this is indicative of a healthy MOS.

MS provides a[n] [average] Low Stock Price Forecast of $97.58, which is 28.8% lower than mine. It’s also closer to the 2020 [COVID crash] low of $90.20. In my opinion, a stock price five years from now > 20% below today’s price is almost unfathomable for [even] a[n] [anemic] growth company. This legitimizes my Low Stock Price Forecast. Forecasting close to the ’20 lows almost seems preposterous. I’d be curious to know if these MS studies were accompanied by a manual EPS override.

A significantly lower Low Stock Price Forecast would move TGT further into the Hold zone, but because this seems unreasonable I choose to ignore it as an offset to the MOS. The only remaining question in my mind is why CNN Business (FactSet) and YF (Refinitiv) project negative 5-year earnings growth when the other four do not.

That concern aside, I feel comfortable with TGT as a BUY under $169/share.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

ULTA Stock Study (2-11-23)

I recently* did a stock study on Ulta Beauty, Inc. (ULTA) with a closing price of $515.75.

M* writes:

     > With roughly 1,350 stores and a partnership with narrow-moat
     > Target, Ulta Beauty is the largest specialized beauty retailer
     > in the U.S. The firm offers makeup (43% of 2021 sales),
     > fragrances, skin care, and hair care products (20% of 2021
     > sales), and bath and body items. Ulta offers private-label
     > products and merchandise from more than 500 vendors. It also
     > offers salon services, including hair, makeup, skin, and brow
     > services, in all stores. Most Ulta stores are approximately
     > 10,000 square feet and are in suburban strip centers.

This medium-sized company has grown sales and earnings at annualized rates of 15.7% and 16.6% over the last 10 years, respectively. The stock price has hardly seen a reprieve. Lines are mostly up, straight, and parallel except for an EPS decline in ’20. PTPM over the last decade has increased from 12.6% to 15% with a last-5-year average (excluding ’20, which was a downside outlier) of 13.3%. This is higher than BBWI (a peer) and industry averages.

ROE has increased from 24.2% to 47.3% over the last 10 years with a last-5-year average (excluding ’20) of 38.5%. This outpaces BBWI and industry averages. Debt-to-Capital was 0% until 2019 and has averaged 51.3% over the last three years (lower than BBWI and industry averages). This is all uncapitalized leases as the company has zero long-term debt.

I assume long-term annualized sales growth of 7% based on the following:

• CNN Business projects 16.3% YOY and 11.5% per year for ’22 and ’21-’23, respectively (based on 24 analysts).
• YF projects YOY 15.7% and 7.3% for ’23 and ’24, respectively (28 analysts).
• Zacks projects YOY 15.8% and 7.8% for ’23 and ’24, respectively (10).
• Value Line projects 4.4% annualized growth from ’21-’26 (12.5% from ’20-’26).
• CFRA projects growth of 15.6% YOY and 10.1% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 12.1% and a 10-year estimate of 7.5% (analyst note).

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 28.2% YOY and 16.3% per year for ’22 and ’21-’23, respectively (based on 24 analysts), along with a 5-year annualized growth of 12.7%.
• MarketWatch projects annualized growth of 18.9% and 14.8% for ’22-’24 and ’22-’25, respectively (29 analysts).
• Nasdaq.com projects 7.2% and 7.9% growth per year for ’23-’25 and ’23-’26, respectively [14, 8, and 1 analyst(s)].
• Seeking Alpha projects 4-year annualized growth of 23.9%.
• YF projects YOY 27.3% and 5.6% for ’23 and ’24, respectively (30), along with 5-year annualized growth of 12%.
• Zacks projects 5.6% YOY for ’24 and a 5-year annualized growth of 13.8% (14).
• Value Line projects 8.9% annualized from ’21-’26.
• CFRA projects 26.1% YOY and 12.8% per year for ’23 and ’22-’24, respectively, along with 23% per year from ’21-’24.
• M* provides a long-term estimate of 11%.

I am projecting well below the average [of seven] long-term estimate[s] (15%).

My Forecast High P/E is 23. Over the last 10 years, high P/E has ranged from 20 (’21) to 42.1 (’13) excluding the upside outlier in ’20 (99.8). The last-5-year average is 29.6 (excluding ’20). This has been trending lower.

My Forecast Low P/E is 15. Excluding the upside outlier in ’20 (39.9), over the last 10 years low P/E has trended down from 28.4 to 15.8. The last-5-year average (excluding ’20) is 18.1.

My Low Stock Price Forecast is the default value of $341.30. The 52-week low price is $330.80, which makes this reasonable despite being 33.8% below the last closing price. The stock has been on a tear lately.

All this computes to an U/D ratio of 0.9, which makes ULTA a HOLD. The Total Annualized Return is 5.3%, and PAR (using Forecast Average, not High, P/E) is 2.6%: less than the current yield on T-Bills.

To assess margin of safety (MOS) in this study, I compare my inputs with Member Sentiment (MS). Out of 536 studies over the past 90 days (my own and eight others with projected low prices above last closing price excluded), projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E average 10.7%, 10.7%, 29.5, and 20.8, respectively. My inputs are all lower. Value Line projects an average P/E of 22, which is lower than MS (25.1) and higher than mine (19).

MS has a Forecast Low Stock Price of $287.67, which is ~15% below mine. This is no surprise given that the stock has rallied ~20% over the last three months; for many studies, this was calculated when the stock was lower.

Despite a decent MOS, I await prices under $423/share to revisit ULTA.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

MED Stock Study (2-10-23)

I recently* did a stock study on Medifast Inc. (MED) with a closing price of $109.45.

M* writes:

     > Medifast Inc is a US-based company that produces, distributes
     > and sells products concerning weight loss, weight management,
     > and healthy living. The company generates its revenue from
     > point of sale transactions executed over an e-commerce platform
     > for weight loss, weight management, and other consumable
     > health and nutritional products.

This [as of 2021] medium-sized company has grown sales and earnings at annualized rates of 17.3% and 30.6% over the last 10 years, respectively. Lines are mostly up and parallel except for a 2-3-year dip between ’14 and ’17. Since ’16, lines look more up, straight, and parallel. PTPM has increased from 6.9% in ’12 to 14.2% in ’21 with a last-5-year average of 13.8%. This just beats the industry average.

ROE has increased over the last 10 years from 17.6% to an eye-popping 82.1% and far outpaces industry averages. Zero long-term debt makes this even more impressive. Debt-to-Capital (as leases) over the last five years averages 6.4%, which is far below industry averages. Current Ratio is 1.49.

I assume long-term annualized sales growth of 5% based on the following:

• YF projects YOY 4.2% and 0.6% for ’22 and ’23, respectively, based on one analyst.
• Zacks projects 2.8% YOY growth and 0.7% YOY contraction for ’22 and ’23, respectively (one analyst).
• Value Line projects 5.6% annualized growth from ’21-’26.

I assume long-term annualized EPS growth of 4% based on the following:

• MarketWatch projects annualized contraction of 1.4% and 0.9% for ’21-’23 and ’21-’24, respectively, based on one analyst.
• Nasdaq.com projects 2% YOY growth and 3.3% growth per year for ’23 and ’22-’24, respectively [2, 2, and 1 analyst(s) for ’22, ’23, and ’24].
• YF projects 9.7% YOY contraction and 5.7% growth per year for ’22 and ’23, respectively (one analyst), along with 5-year annualized growth of 20%.
• Zacks projects 6.4% YOY contraction and 2% YOY growth for ’22 and ’23, respectively (two analysts).
• Value Line projects annualized growth of 4.6% from ’21-’26 and 12.3% from ’20-’26, but the latter may be [artificially high and] less meaningful as a result of base effects (i.e. a 60% YOY jump in ’21 EPS).

This is about as scant as analyst coverage can be, which makes long-term forecast difficult. I basically have 20% and 4.6%. Given one estimate, I might halve to get an acceptable margin of safety. With two, I am just using the lower number.

My Forecast High P/E is 17. Over the last decade, high P/E has ranged from 17 (’13) to 56.5 (upside outlier in ’18) with a last-5-year average (excluding the outlier) of 26.4. I am taking the low end of the range.

My Forecast Low P/E is 6. Over the last decade, low P/E has ranged from 5.6 (downside outlier in ’20) to 18.2 (’16) with a last-5-year average of 12.1. I am targeting the lower end of the range.

My Low Stock Price Forecast is the default value of $79.10. This is 27.7% below the previous closing price. It is also 17.6% below the 52-week low and 57% below the 2021 low.

All this computes to an U/D ratio of 5.4, which makes MED a BUY. The Total Annualized Return is 22.4%.

MED has a hefty dividend yield close to 6%. After dividend inception in ’15, Payout Ratio has ranged from 40.9% (’21) to 71.8% (’16) with a last-5-year average of 51.2%. I am forecasting below the entire range at 40%.

PAR is 14.5%, which is outstanding for a medium-sized company.

I use Member Sentiment (MS) to assess margin of safety (MOS) by getting some idea how likely the company may be to outperform my estimates. Out of 176 studies over the past 90 days (my own and 104 others with projected low prices above last closing price excluded), projected sales, projected EPS, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 10%, 8.7%, 20.5, 11.2, and 50.1%, respectively. I am lower on all inputs. Value Line projects an average annual P/E of 20, which is higher than MS (15.8) and me (11.5). MOS seems healthy here.

MS Low Stock Price Forecast is $77.15—about 3% below mine. This would lower my U/D just a tad while effectively lowering the Forecast Low P/E, which I already selected to be sufficiently low.

As an aside, I’m surprised to see so many [now] invalid studies due to Low Stock Price Forecast > previous close. These studies are all from the past 90 days when MED traded no higher than $130.31. Forecast Low Stock Price is $130 or higher in 77 of those studies, which means they were invalid from the outset.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

FIVE Stock Study (2-9-23)

I recently* did a stock study on Five Below Inc. (FIVE) with a closing price of $199.04.

Value Line writes:

     > Five Below, Inc. offers a broad range of merchandise targeted
     > to the teen and pre-teen customer. Most products are priced
     > at $5 or below, with some in the $6-$10 range (Five Beyond).
     > Products are in the following category worlds: Style, Room,
     > Sports, Tech, Create, Party, Candy, and Now.”

This medium-sized company has grown sales and earnings at annualized rates of 22.5% and 26.6% over the last 10 and nine (excluding a loss in ’12) years, respectively. Lines are mostly up, straight, and parallel except for an EPS decline in ’20. PTPM over the last decade has ranged from 7.8% (’20) to 12.9% (’21) with a last-5-year average of 11.5%. This is higher than peer and industry averages.

ROE has fallen from 35.9% (’13) to 26.7% (’21) with a last-5-year average of 25%, which is better than peer and industry averages. The debt-to-capital ratio has averaged 33% over the last five years, which is lower than peer and industry averages. FIVE has zero total debt and a Current Ratio of 1.5.

I assume long-term annualized sales growth of 12% based on the following:

• CNN Business projects 10.7% YOY and 13.4% per year for ’22 and ’21-’23, respectively (based on 23 analysts).
• YF projects YOY 7.4% and 17.2% for ’23 and ’24, respectively (23 analysts).
• Zacks projects YOY 7.4% and 17.4% for ’23 and ’24, respectively (9).
• Value Line projects 17.9% annualized from ’21-’26.
• CFRA projects 7.1% YOY and 12% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 12.4% and a 10-year estimate of 13% (analyst note).

I assume long-term annualized EPS growth of 17.3% based on the following:

• CNN Business projects a 5.5% YOY contraction and 6.7% growth per year for ’22 and ’21-’23, respectively (based on 23 analysts), along with a 5-year annualized growth rate of 20.5%.
• MarketWatch projects annualized rates of 6.7% and 11.7% for ’22-’24 and ’22-’25, respectively (26 analysts).
• Nasdaq.com projects annualized rates of 20.6% and 25.7% for ’23-’25 and ’23-’26, respectively [8, 6, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized growth of 24.8%.
• YF projects YOY 5.5% contraction and 20.7% growth for ’23 and ’24, respectively (24), along with 5-year annualized growth of 12.2%.
• Zacks projects YOY 5.5% contraction and 20.1% growth for ’23 and ’24, respectively (11), along with a 5-year annualized growth rate of 19%.
• Value Line projects annualized growth of 17.3% from ’21-’26.
• CFRA projects 6.9% YOY contraction and 6.9% growth per year for ’23 and ’22-’24, respectively, along with a 3-year annualized growth rate of 37% [after inquiring, CFRA changed this to NMF due to misleading base effects].
• M* provides a long-term estimate of 18.3%.

2022 earnings are in decline and because I believe this to be an isolated event, I will look to exclude the recent quarters. I can do this by projecting from the 2021 data point with my desired 13% growth rate. This is equivalent to projecting from the last quarterly data point ($4.11/share) with a 17.3% growth rate. Doing the latter keeps with the default approach, which will probably be more commonly applied in Member Sentiment (see MS below) studies.

While this type of manual override is more aggressive than my usual methodology, I am still lower than all but one (YF) of six long-term analyst estimates (mean 19.5%).

My Forecast High P/E is 36. Since 2013, High P/E has ranged from 39.5 (’15) to 93.7 (’13) with a last-5-year average of 55.3. I expect that to come down to earth at some point.

My Forecast Low P/E is 25. Since 2013, Low P/E has ranged from 20.2 (’17) to 58.7 (’13) with a last-5-year average of 25.1. I would typically project 20 in such a case, but I’m electing to be more aggressive.

My Low Stock Price Forecast is the default value of $102.80. Although more than the 20% “rule of thumb” below the previous closing price [-48%], I think it reasonable being only 6.1% less than the 52-week low. Raising the Low Stock Price Forecast would effectively be raising the Forecast Low P/E, which is already at my upper limit of comfort.

All this computes to an U/D ratio of 1.3, which makes FIVE a HOLD. The Total Annualized Return (TAR) computes to 10.5%.

PAR, which is based on Forecast Average (not High) P/E, is 6.9%: lower than I want to see for a medium-sized company.

I use MS to assess margin of safety (MOS) by getting an idea how likely the company may be to outperform my estimates. Out of 345 studies over the past 90 days (my own and two others with projected low prices above last closing price excluded), projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 15.2%, 16.1%, 39.2, and 25, respectively. My inputs are not substantially different, which means my study has negligible MOS. Value Line projects an average annual P/E of 30, which is just lower than mine (30.5) and lower than MS (32.1).

I will look to revisit FIVE under $159/share.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

OLLI Stock Study (2-8-23)

I recently* did a stock study on Ollie’s Bargain Outlet Holdings (OLLI) with a closing price of $56.75.

M* writes:

     > Ollie’s Bargain Outlet Holdings Inc is a retailer of brand name
     > merchandise at drastically reduced prices. It offers customers a
     > selection of brand name products, including housewares, food,
     > books and stationery, bed and bath, floor coverings, toys, and
     > hardware. It operates stores across the Eastern half of the
     > United States. Its differentiated go-to-market strategy is
     > characterized by a unique, fun and engaging treasure hunt
     > shopping experience, compelling customer value proposition and
     > witty, humorous in-store signage and advertising campaigns.
     > These attributes have driven rapid growth and strong and
     > consistent store performance for the company.

This medium-sized company has grown sales and earnings at annualized rates of 16.9% and 32.4%, respectively, over the last nine years. Lines are mostly up, straight, and parallel until 2021 when sales dipped and EPS started to fall. Over the last 10 years, PTPM has been higher than peer (stated as PSMT, DOL.TO, and BIG) and industry averages, increasing from 5.7% in ’13 to 15.4% in ’20 before starting to decline. The last-5-year average is 12.9%.

Since 2015, ROE has increased from 7% to 19% (’20) before heading lower. The last-5-year average is 15.2%, which is lower than peer and industry averages. The debt-to-capital ratio has fallen from 37.7% in ’13 to 25.1% in ’21. This is just over the last-3-year average and lower than peer and industry averages. Long-term debt is minuscule with most debt being uncapitalized leases. Current ratio is 2.83.

I assume long-term annualized sales growth of 5% based on the following:

• CNN Business projects flat YOY and 5.4% growth per year for ’22 and ’21-’23, respectively (based on 15 analysts).
• YF projects YOY 3.8% and 9.9% for ’23 and ’24, respectively (15 analysts).
• Zacks projects YOY 3.8% and 10.6% for ’23 and ’24, respectively (6).
• Value Line projects 9.8% growth per year from ’21-’26.
• CFRA projects 3.8% YOY and 7% per year for ’23 and ’22-’24, respectively (14).
• M* provides a 2-year annualized estimate of 7.8%.

I assume long-term annualized EPS growth of 6% based on the following:

• CNN Business projects a 33.1% YOY contraction and 0.2% growth per year for ’22 and ’21-’23, respectively (based on 15 analysts) along with 5-year annualized growth of 0.5%.
• MarketWatch projects 0.9% and 7.1% growth per year for ’22-’24 and ’22-’25, respectively (20 analysts).
• Nasdaq.com projects 49.4% YOY and 32.2% per year for ’24 and ’23-’25, respectively (7, 7, and 3 analysts).
• Seeking Alpha projects 5-year annualized growth of 15.8%.
• YF projects YOY 33.1% contraction and 50% growth for ’23 and ’24, respectively, along with 5-year annualized growth of 7.5% (15).
• Zacks projects YOY 33.1% contraction then 49.4% growth for ’23 and ’24, respectively, along with 5-year annualized growth of 12.1% (7).
• Value Line projects 13.8% annualized growth from ’21-’26.
• CFRA projects YOY 35% contraction and 0.6% contraction per year for ’23 and ’22-’24, respectively (14).

While my forecast is lower than the average of five longer-term growth rates (10.5%), I am overriding projection from the last annual (not quarterly) data point. The latter is a more aggressive calculation.

My Forecast High P/E is 29. Over the last seven years, high P/E has ranged from 29.8 (’17) to 48.1 (’19) with a last-5-year average of 39.8.

My Forecast Low P/E is 15. Over the last seven years, low P/E has ranged from 7.8 (potentially a downside outlier in ’20) to 24.7 (’18 and ’19) with a last-5-year average (excluding the 7.8) of 20.6.

My Low Stock Price Forecast is $36.50 based on the annual (not quarterly) earnings as mentioned above. This is just below the 52-week low price and 35.7% below the previous closing price.

All this results in an U/D ratio of 1.9, which makes OLLI a HOLD. The Total Annualized Return (TAR) computes to 10.7%.

PAR is 4.7%, which is lower than desired for a medium-sized company.

To assess margin of safety (MOS), I compare my inputs with those from Member Sentiment (MS). Out of 200 studies over the past 90 days (excluding my own along with 14 others with Low Stock Price Forecast above last closing price), projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 10.9%, 11.8%, 31.1, and 18.3, respectively. I am lower on all inputs. Value Line projects an average annual P/E of 24, which is slightly lower than MS (24.7) but higher than mine (22).

Overall, I appear to have a decent MOS built into this study, but I need to see the stock fall ~10% before considering a purchase for longer-term investment

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

GNRC Stock Study (2-6-23)

I recently* did a stock study on Generac Holdings Inc. (GNRC) with a closing price of $122.44.

M* writes:

     > Generac Power Systems designs and manufactures power generation
     > equipment serving residential, commercial, and industrial markets.
     > It offers standby generators, portable generators, lighting,
     > outdoor power equipment, and a suite of clean energy products.

This medium-sized company has grown sales and earnings at annualized rates of 11.2% and 18.6%, respectively, over the last 10 years. Lines are mostly up and parallel except for sales/EPS declines in ’14 and ’15 along with EPS decline in recent quarters. PTPM has been cyclical—ranging from 9.3% (’15) to 18.8% (’13) with a last-5-year average of 15.7%. This is higher than peer (stated as SPXC, IR, and GTES) and industry averages.

Excluding an upside outlier of 66.9% in ’13, ROE has ranged from 15.1% (’15) to 38.3% (’14) with a last-5-year average of 30%. This leads peer and industry averages. Debt-to-Capital has trended lower since 2012 from 65.8% to 37.4% with a last-5-year average of 49.1%. This is mostly higher than peer and industry averages. Interest Coverage is 14 and Current Ratio is 2.1 (sans inventory, the Quick Ratio is 0.70).

I assume long-term annualized sales growth of 7% based on the following:

• CNN Business projects growth of 24.3% YOY and 6.5% per year for ’22 and ’21-’23, respectively (based on 20 analysts).
• YF projects 22.5% YOY growth and 8.6% YOY contraction for ’22 and ’23, respectively (22 analysts).
• Zacks projects YOY growth of 22.7% and YOY contraction of 7.1% for ’22 and ’23, respectively (7).
• Value Line projects annualized growth of 18.4% from ’21-’26.
• CFRA projects growth of 24% YOY and 15.2% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year growth estimate of 7%.

I assume long-term annualized EPS growth of 5% based on the following:

• CNN Business projects contraction of 12.5% YOY and 13.4% per year for ’22 and ’21-’23, respectively (based on 20 analysts) along with 5-year annualized growth of 10%.
• MarketWatch projects contraction of 13.2% and 4% per year for ’21-’23 and ’21-’24, respectively (25 analysts).
• Nasdaq.com projects annualized growth of 2.1% and 5.4% for ’22-’24 and ’22-’25, respectively (7, 10, and 3 analysts).
• Seeking Alpha projects 5-year annualized growth at 10%.
• YF projects YOY contraction of 10.9% and 15% for ’22 and ’23, respectively, along with 5-year annualized contraction of 1.4% (22).
• Zacks projects YOY contraction of 11.7% and 14.2% for ’22 and ’23, respectively, along with 5-year annualized growth of 10% (11).
• Value Line projects annualized growth of 20.4% from ’21-’26.
• CFRA projects 2.9% YOY contraction and 2.7% growth per year for ’23 and ’22-’24, respectively, along with a 3-year annualized growth of 12%.
• M* gives a long-term annualized growth ACE of 6.7%.

My projected growth rate is somewhat of a compromise. Seeing that ’22 is not complete, my guess is that analyst long-term estimates are based on the last annualized number. As this effectively raises the High Stock Price Forecast, I will do so with a lower growth forecast: 5% rather than 6%.

My Forecast High P/E is 22. Over the last 10 years, high P/E has ranged from 17.1 (’18) to 63.2 (upside outlier in ’21) with a last-5-year average (excluding the outlier) of 26.7.

My Forecast Low P/E is 12. Over the last 10 years, low P/E has ranged from 12 (’19) to 26.8 (upside outlier in ’21) with a last-5-year average (excluding the outlier) of 12.8.

My Low Stock Price Forecast of $79.80 is the default value. This is about 35% below the last closing price and 7.5% lower than the 52-week low price.

All this results in an U/D ratio of 2.6, which makes GNRC a HOLD. The Total Annualized Return (TAR) computes to 13.7%.

PAR is 8%, which is a bit lower than I’d like to see for a medium-sized company.

I use member sentiment (MS) to assess margin of safety (MOS) in deciding how likely it is that TAR rather than PAR can be realized. Out of 378 studies over the past 90 days (excluding my own along and 50 others with invalid low prices), projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E average 11%, 12%, 24.8, and 14.3, respectively. I am lower on all inputs. Value Line’s estimate, perhaps the most optimistic of all, seems like an upside outlier. They project a future average annual P/E of 27.5, which far outpaces my 17 and is also higher than MS 19.5.

MOS appears to be alive and well in this study.

MS Low Stock Price Forecast is $84.33: 5.7% above my own. This is not unreasonable and would put me just on the cusp of the BUY zone. I am sticking with my Forecast Low P/E, however, which results in a HOLD on these shares at $118 or higher.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

PKG Stock Study (2-3-23)

I recently* did a stock study on Packaging Corp. of America (PKG) with a closing price of $145.09.

M* writes, “Packaging Corp of America is the third-largest containerboard and corrugated packaging manufacturer in the United States.”

This medium-sized company has grown sales and earnings at annualized rates of 6.8% and 9.8%, respectively, over the last 10 years. Lines are mostly up and parallel except for EPS declines in ’14, ’19, and ’20. PTPM has trended higher over the last 10 years from 11.3% to 16.1% with a last-5-year average of 13.4%. This is significantly higher than peer (stated as CAS.TO, SEE and REYN) and industry averages.

ROE has trended mostly flat since 2014 with a last-5-year average of 23%. Debt-to-Capital has trended lower since 2013 with a last-5-year average of 46.1% (data not available for ’22), which is significantly lower than peer and industry averages. Quick Ratio and Interest Coverage seem acceptable at 1.92 and 11, respectively.

I assume long-term annualized sales growth of 1% based on the following:

• CNN Business projects 3.5% YOY contraction and 1.2% contraction per year for ’23 and ’22-’24, respectively (based on 9 analysts).
• YF projects 3.7% YOY contraction and 0.8% YOY growth for ’23 and ’24, respectively (8 analysts).
• Zacks projects YOY contraction of 4.2% and 0.8% for ’23 and ’24, respectively (4).
• Value Line projects 5.3% growth per year from ’21-’26.
• CFRA projects 1.5% YOY contraction and 0.7% growth per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year growth estimate of 1.1%.

I assume long-term annualized EPS growth of 1% based on the following:

• CNN Business projects 17% YOY contraction and 8.8% contraction per year for ’23 and ’22-’24, respectively (based on 9 analysts) along with 5-year annualized growth of 1%.
• MarketWatch projects annualized contraction of 8.3% and 4.9% for ’22-’24 and ’22-’25, respectively (13 analysts).
• Nasdaq.com projects 0.9% YOY contraction and 0.3% per year growth for ’24 and ’23-’25, respectively (6, 5, and 2 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 5-year annualized growth of 3%.
• YF projects YOY contraction of 17.3% for ’23 and 5-year annualized contraction of 7.7% (8).
• Zacks projects YOY contraction of 18.2% and 0.9% for ’23 and ’24, respectively, along with 5-year annualized growth of 5% (5).
• Value Line projects annualized growth of 8.4% from ’21-’26.
• CFRA projects 16.8% YOY contraction and 8.3% contraction per year for ’23 and ’22-’24, respectively, along with 3-year annualized growth of 2%.
• M* estimates long-term annualized contraction of 1.6%.

My Forecast High P/E is 14. Over the last 10 years, high P/E has ranged from 14.4 (’13) to 28.7 (upside outlier in ’20) with a last-5-year average (excluding the outlier) of 16.4.

Forecast Low P/E is 8. Over the last decade, low P/E has ranged from 8.5 (’13) to 14.7 (’20) with a last-5-year average of 12.

My Low Stock Price Forecast of $88.10 is default. This is 39% below the last closing price. The low of the last two years is $110.60, but given such dim growth prospects, the Forecast Low P/E seems reasonable.

All this results in an U/D ratio of 0.3, which makes PKG a SELL. The Total Annualized Return computes to 4.7%.

Over the last 10 years, Payout Ratio has ranged from 33.8% (’13) to 69.6% (upside outlier in ’20) with a last-5-year average (excluding the outlier) of 42.5%. I used 34% as a conservative estimate.

Although the current yield (3.4%) is a bright point for this stock, a PAR (using Forecast Average, not High, P/E) of 0.5% is an exclamation point for what is otherwise a depressing stock study. One of BI’s core principles is to buy stock in high-quality growth companies. While PKG has demonstrated consistent historical growth, the outlook for future growth is muddy at best. With the stock up about 17% in just over three months, it’s now far past the BUY zone.

I like to assess margin of safety (MOS) by comparing my inputs with Member Sentiment (MS). Out of 68 studies over the past 90 days, projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 5.4%, 6.3%, 17.8, and 11.8. I am dramatically lower on all inputs. Value Line also projects an average annual P/E of 19, which is higher than MS 14.8 and much higher than my 11. I do see a large MOS in this study, but with the wide range of long-term EPS estimates on either side of zero, I also see good reason to be conservative.

MS has a Low Stock Price Forecast of $107.55, which seems reasonable being 20%+ below the last closing price. I just cannot be convinced to raise mine at this time, however [which would increase the U/D ratio]. Seven long-term EPS growth estimates average 1.7%. My forecast is not much lower, and I would not be surprised to see P/E fall to the bottom of its 10-year range given such anemic growth.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

NFLX Stock Study (2-2-23)

I recently* did a stock study on Netflix Inc. (NFLX) with a closing price of $361.99.

CFRA writes, “Netflix is the world’s largest Internet subscription service for accessing TV shows and movies.”

This large-sized company has grown sales and earnings at annualized rates of 26.6% and 58.4%, respectively, over the last 10 years. Lines are mostly up and parallel except for EPS declines in ’15 and ’22. PTPM has trended higher over the last 10 years from 3.9% to 16.6% with a last-5-year average of 13.4%. This trails peer (stated as PARA and FOX) and industry averages.

ROE has trended up from 9.2% to 21.6% over the last 10 years with a last-5-year average of 26%. Debt-to-Capital increased from 27.3% in ’13 to 66.4% in ’18 before declining to 40.9% in ’22. The last-5-year average is 56.5%, which is higher than desired. Interest Coverage is somewhat reassuring at 8, but Quick Ratio offers little comfort at 0.96. As of Q2 2022, the M* analyst describes the company “in a decent position” with $14.2B long-term debt and $7.8B cash. Management has stated the firm should not need to tap the credit market in the future to fund its ongoing content spending, but this can always change.

I assume long-term annualized sales growth of 8% based on the following:

• CNN Business projects 8.5% YOY and 10.2% per year for ’23 and ’22-’24, respectively (based on 36 analysts).
• YF projects YOY 8.9% and 11.8% for ’23 and ’24, respectively (32 analysts).
• Zacks projects YOY 8% and 11.6% for ’23 and ’24, respectively (12).
• Value Line projects 9.7% annualized growth from ’21-’26.
• CFRA projects 9.4% YOY and 10.5% per year for ’22 and ’21-’23, respectively.
• M* provides a 2-year estimate of 10.2%.

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 13.7% YOY and 19.6% per year for ’23 and ’22-’24, respectively (based on 36 analysts), along with 5-year annualized growth of 24%.
• MarketWatch projects 17.8% and 20% per year for ’22-’24 and ’22-’25, respectively (45 analysts).
• Nasdaq.com projects 26.6% and 28.9% per year for ’23-’25 and ’23-’26, respectively (14, 7, and 2 analysts).
• YF projects YOY 14.9% and 26.2% for ’23 and ’24, respectively, along with 16% per year for the next 5 years (32).
• Zacks projects YOY 11.9% and 28.3% for ’23 and ’24, respectively, along with 19.2% per year for the next 5 years (14).
• Seeking Alpha projects 5-year annualized growth of 24.5%.
• Value Line projects 7.7% per year from ’21-’26.
• CFRA projects 16.6% YOY and 21.5% per year for ’22 and ’21-’23 along with 3-year annualized growth of 18%.
• M* gives a long-term estimate of 18.2%.

I’m forecasting near the bottom of the long-term-estimate range (8.9% – 26%). Because a rebound is forecast following a sharp [quarterly] EPS drop in ’22, I decided to override projection from the last annual (vs. quarterly) data point.

My Forecast High P/E is 35. High P/E has come down from 210 in ’13 to 61.3 in ’22 with a last-5-year average trending lower at 93.9. At some point, I expect P/E to fall into a “normal” range.

My Forecast Low P/E is 25. Low P/E has come down from 49.1 in ’13 to 16.4 in ’22. The last-5-year average is trending lower at 48.1. Again, at some point I expect this to fall into a “normal” range and we may already be starting to see this.

My Low Stock Price Forecast of $247.7 is default. This is 31.2% below the last closing price. The 52-week low price is $162.7.

All this results in an U/D ratio of 1.3, which makes NFLX a HOLD. The Total Annualized Return (TAR) is projected at 7.2%.

A PAR (using Forecast Average, not High, P/E) of 3.9% dictates waiting for a lower price. I certainly see room for downside stock volatility as my Low Stock Price Forecast is > 50% above the 52-week low.

If I can glean any current optimism for buying prospects then it would be in the margin of safety, which I can assess through comparison with Member Sentiment (MS). Out of 333 studies over the past 90 days, projected sales, projected EPS, High P/E, and Low P/E average 12.9%, 11.8%, 65.3, and 54.3, respectively. I am lower on all inputs—especially on P/E. Value Line projects a future average annual P/E of 35.5, which is also higher than my 30.

MS has a Low Stock Price Forecast ~$239, which is lower than mine. A closer look reveals some projected lows over $300 (some much higher than the current price) and some under $100. When I exclude these 67 studies, the MS Low Stock Price Forecast drops to $198.69. While that would pull NFLX even farther from the Buy zone in my study, at -31.2% I think my Low Stock Price Forecast is sufficient.

Projected High Price is where my study really diverges from MS: $511 vs. their $1,135.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.

AMZN Stock Study (2-1-23)

I recently* did a stock study on Amazon.com Inc. (AMZN) with a closing price of $103.13.

Value Line writes:

     > Amazon.com is the largest online retailers [sic]. The company opened
     > its virtual doors in 1995. Sales breakdown (2021): North America;
     > 59% of sales. International sales, 27% of total. Amazon Web Services
     > (AWS), 14%. Third-party sellers (Marketplace) account for about 20%
     > of sales. Seasonality: Q4 accounted for 29% of ’21 revenue.
     > Acquired Audible.com, ’08, Zappos, ’09, Whole Foods Market, ’17.

This mega-sized (> $50B annual revenue) company has grown sales at an annualized rate of 26.1% over the last 10 years and EPS 71.1% per year since 2016 (excluding previous years with tiny EPS that skew the historical average even higher). Lines are mostly up and parallel except for EPS decline in ’22. PTPM has trended higher over the last 10 years from ~1% to ~8% with a last-5-year average of 5.3%. This slightly trails peer (stated as VIPS, JDD, and PDD) and industry averages.

ROE has trended up from ~0% to ~27% over the last 10 years with a last-5-year average of 22.1%. Debt-to-Capital has increased from 31.9% to 45.7% with a last-5-year average of 49.8%. This is lower than peer and industry averages. Although Interest Coverage is only 5.6 and the Quick Ratio only 0.68, the M* analyst writes:

     > The balance sheet is sound with a net cash position and only modest
     > gross debt. We expect the balance sheet to remain sound as the
     > company has typically maintained a conservative balance sheet and
     > generates more than enough FCF from [Amazon Web Services] and
     > advertising to fund growth throughout the business.

I assume long-term annualized sales growth of 8% based on the following:

• YF projects YOY 8.6% and 9.6% growth for ’22 and ’23, respectively (based on 46 analysts).
• Zacks projects YOY 8.6% and 9.1% growth for ’22 and ’23, respectively (13).
• Value Line projects 17.8% growth per year from ’21-’26.
• CFRA projects 13.3% YOY and 10.8% per year for ’22 and ’21-’23, respectively.
• M* provides a 2-year estimate of 8.6%.

I assume long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 5-year annualized growth of 12.2%.
• MarketWatch projects annualized ACE of -8.1% and 11.6% for ’21-’23 and ’21-’24, respectively (based on 54 analysts).
• Nasdaq.com projects 65.8% YOY and 66.9% per year for ’24 and ’23-’25, respectively (12, 8, and 4 analysts).
• YF projects YOY growth of -103.7% and 1433% as negative ’22 earnings rebound in ’23 off a fractional base (46).
• YF also gives a 5-year annualized estimate of 26%.
• Zacks similarly projects YOY growth of -104.3% and 1228% as earnings turn negative in ’22 then rebound in ’23 (11).
• Zacks gives a 5-year annualized estimate of 18%.
• Value Line projects annualized growth of 21.2% from ’21-’26.
• CFRA projects -103.7% YOY and -24.6% per year for ’22 and ’21-’23, respectively.
• M* gives a long-term growth estimate of 8.9%.

I’m forecasting near the bottom of the long-term-estimate range (8.9% – 26%). Because a rebound is forecast following a sharp [quarterly] EPS drop in ’22, I decided to override projection from the last annual (vs. quarterly) data point.

My Forecast High P/E is 35. Since 2016, high P/E has eased from 173 to 58.2 (2021). The last 5-year average is 106.1. At some point, I expect P/E to fall into a “normal” range, but predicting when this happens is like taking a shot in the dark.

My Forecast Low P/E is 25. Since 2016, low P/E has eased from 97 to ~44 (2021) with a last 5-year average of 65.3. I expect this to fall into a “normal” range eventually (I’m astounded that this hasn’t happened already to the mega-sized company).

My Low Stock Price Forecast is $81. The default low price is $27.30 based on the depressed $1.09 EPS. This does not seem reasonable. Instead, I will use the 2020 low price of $81.30, which is 21% below the last closing price.

All this results in an U/D ratio of 3.2. This makes AMZN a BUY with a Total Annualized Return (TAR) of 11.1%.

AMZN’s 17% ownership stake in RIVN is what makes this analysis so complex. AMZN lost $10.4B over the first nine months of 2022 due to the drop in RIVN stock price. This is why analysts forecast -100% EPS growth for 2022 and why some 2023 [provided that RIVN shares do not continue the precipitous decline] growth projections are over 1000%. In my view, any math amounting to a 20%+ long-term (e.g. 3-5) EPS growth rate after years 1-2 are negative is suspect.

While TAR is decent, PAR (using forecast average, not high, P/E) is only 7.7%. Is it reasonable to expect the former, which is consistent with the highest long-term analyst estimates?

To answer this, I assess margin of safety (MOS) by comparing my inputs with Member Sentiment (MS). Out of 1142 studies over the past 90 days, projected sales, projected EPS, high P/E, and low P/E average 13.9%, 17%, 78.6, and 67, respectively. I am dramatically lower on all inputs.

To calculate average MS Low Stock Price Forecast, I excluded 199 studies using $100 or more. At least half of these were four digits, and I deem all them to be unreasonable and/or invalid. The revised averages are 13.1%, 16.4%, 73.6, and 61.5, respectively: still well higher than mine. The average Low Stock Price Forecast is $70.50, which is lower than mine and would have resulted in a HOLD for this study rather than BUY. I’m not sure how meaningful this is as I would similarly have had a lower Low Stock Price Forecast had I chosen to use the 2020 low—a decision one could argue to be unreasonable.

While my aim is to use MS to evaluate MOS, I wonder if such comparison here might be apples-to-oranges because I don’t know how many changed projection from the last quarterly (default) to annual data point. Nevertheless, both my growth rate and P/E projections are lower than MS. Even if the conservativism of one set effectively offsets the [more aggressive decision to] override from quarterly to annual data point, I still have the other conservative set providing MOS.

And Value Line has a projected average annual P/E of 40 compared to my 30, which further bolters the conservative case.

Despite the lackluster PAR, given the apparent MOS I like a BUY on these shares up to $104.

*—Publishing in arrears as I’ve been doing one daily stock study while only posting two blogs per week.