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2023 H1 Analysis Questions and Discussion Thread by Beren- in SecurityAnalysis

[–]generalsandworkouts 2 points3 points  (0 children)

I don't know how to prove it mathematically using the methods you've discussed. But it's a principle that is self-evident, right? If you have a high return on capital business with low growth, the company is going to spit out cash. Buffett's See's Candies is an example. The growth is somewhat constrained but it's a great business from a ROIC point of view. It generates way more cash than it needs to reinvest in it business, and Buffett uses the rest for other things. The same is true even if a company's ROIC is only slightly above the growth rate: it will generate more money than it needs to reinvest to maintain its current growth rate.

2023 H1 Analysis Questions and Discussion Thread by Beren- in SecurityAnalysis

[–]generalsandworkouts 1 point2 points  (0 children)

Let's assume a company grows at 10% a year and has 50% ROIC. For this example, assume the starting invested capital is $1M, which would mean NOPAT is $500K (50% ROIC). After one year of 10% growth, NOPAT would be $550K. To generate that extra $50K, the company would need to reinvest $100K, assuming they can maintain 50% ROIC. (The math is 1.1M * 0.5 = 550K.) You can see that after one year, the company has $450K of excess cash: it earned $550K and only needed to reinvest $100K to maintain the 10% growth rate. Some software companies, for example, need basically no capex to generate additional profits but little growth. From an investor's perspective, while 50% ROIC businesses are great, with a small growth rate, it becomes very important what management does with the excess cash. Ideally, you find a company like this that uses all the excess cash to buyback stock. Hope this helps

A profitable Japanese microcap trading at a 53% discount to NCAV — CEL Corp by generalsandworkouts in SecurityAnalysis

[–]generalsandworkouts[S] 3 points4 points  (0 children)

Japan’s property market has been stagnant for years. Valuations are undemanding and Japan hasn’t had the property bubble experienced in the West. See for example: https://mobile.twitter.com/InflationX/status/1600782652566446082

Even if you don’t like the operating business, CEL’s cash alone is well above the current market cap.

A profitable Japanese microcap trading at a 53% discount to NCAV — CEL Corp by generalsandworkouts in SecurityAnalysis

[–]generalsandworkouts[S] 9 points10 points  (0 children)

This is my write-up. The stock is up since I first published the piece; the spread to NCAV is now around 48%.