Since my last post I have been doing a lot of research on Dole and its history and operations. I have the sum of the parts valuation almost completely done and am just waiting for its next quarterly report so that I can finish all my valuations and analysis and get the article together.
I also have a call in to Dole investor relations about something that I came across that could be potentially problematic for current shareholders if I understand the situation correctly. After I hear back from Dole IR tomorrow, I will let you know about the situation and how it could affect my valuations and analysis, if at all.
In between doing research I have also finally put together my buying investment checklist and wanted to share it with you to see if I missed anything. I still need to organize the checklist better but wanted to get your input first.
- Can I in a short paragraph explain what the company does?
- Is the company undervalued? If so by how much and does it reach my minimum 30% margin of safety threshold?
- Does the company create FCF? If it does, how long has it created positive FCF?
- Does the company pay a dividend and is the dividend safe?
- Does the company buy back shares? If the company does buy back shares is it at a discount to intrinsic value? Does the company take advantage of its shares being overvalued by issuing shares?
- What is the EV/EBIT ratio?
- What are the company’s margins? (EBIT, Net, Gross, FCF/Sales, ROIC, ROE, etc) Are the company’s margins getting better or worse?
- If ROIC and ROE are high is it because they are inflated by debt?
- What are the company’s debt ratios and are they getting better or worse? Are they sustainable in your eyes?
- What are the company’s total debt and contractual obligations? When are these obligations due? Is this sustainable?
- Is there some kind of catalyst to unlock the value in the shares if the shares are undervalued?
- What is insider ownership? Have insiders and institutions been buying or selling?
- Do any value investing partnerships, hedge funds, or activist investors own shares in the company?
- What is the company’s book value per share and is it selling for less than book value?
- Has book value been growing or declining?
- Does the company have any kind of sustainable competitive advantages? If so what? Same questions with barriers to entry into the industry? Does the company have pricing power?
- What are the current and quick ratios?
- Has there been recent dilution in the stock? If so why?
- Do I trust Management? Have any directors or executives had problems in the past legally or ethically with companies they have been a part of?
- Does the company require a lot of cap ex to maintain?
- Are the company’s prospects good into the future?
- Is the company’s business essential? Can the company’s operations becoming outdated fast by technology? Can the company’s operations be destroyed by Amazon, EBay, or Wal Mart?
- Have cost of goods sold as a % of revenue been going up or down?
- Is managements pay too high? Is management pay structure convoluted? Do management and other insiders own a decent portion of the company? Are managements goals aligned with shareholders?
- Is the company in an unloved boring sector?
- Has the company been having problems it can overcome? Has it recently dropped out of an index or is there irrational selling in the stock? Is the company dealing with any other kind of irrational fear that could lead to a buying opportunity?
- If this is a spinoff have company insiders been buying shares in either company?
- Are you comfortable holding the company for at least 5 years? If this is a spin off or other special situation, how long are you comfortable holding the company for?
- In your opinion is the company able to compound its returns over time without acquisitions?
- Which portion of the portfolio will this company go into Special Situations, Long Term Compounders, or Net Net/Asset plays?
- Are you willing to go all in on this company; at least a minimum 20% of the portfolio?
- Is the company better than having cash in the portfolio?
- How long is the cash conversion cycle, has it being going up or down?
- How big is the downside if you buy into the company?
- How much cash and other assets does the company have in case of problems?
- What potential problems does the company face in the near future? Are those problems big enough to keep you from investing? What are risks to the company and how likely are those risks to disrupt your investment thesis?
- How robust is the company’s competition? What is the company ranking in its industry? Can the company out compete?
- Is this investment better than buying stock in companies that are already in your portfolio? If so why? If not why should it be added to the portfolio?
- How many customers does the company have? If it is only a few are you comfortable with those customers?
- Does the company have any underlying undervalued assets that could be sold/spun off/put to better use to unlock value; land, intellectual property, buildings, etc?
Other than organizing it better which I am going to do, let me know if I missed anything that you use in your own checklists.
Hopefully I will hear back from Dole IR tomorrow so I can update that situation as well.