This homework is from Jason Moore, who saw me speak in Nashville and wanted to take a stab at a 4M analysis. I think he's done a great job so far. Keep reading. The company is Corporate Executive Board (EXBD).
(The screenshots he sent me may be a little blurry, but they'll give you an idea of how he arrived at his results.)
From: Jason
To: Phil
Date: August 3
Phil,
I first heard of your concept at the Nashville Get Motivated seminar a few months ago. I signed up for the one day Success Magazine seminar and followed through and started their Stocks and Options coaching. Since then I continue to read your blog, and I have been very impressed with the way that you respond to your readers. So, I am going to give this thing a shot.
Stock: EXBD
4Ms
Meaning:
Corporate Executive Board (CEB) is focused on improving corporations through shared knowledge around the world between the best companies on the planet. Their literature points to the right things stating that their employees drive the company among other ideas. They are generous with their dividends to share holders, but retain enough of their profits (we'll get to that in a minute) for future growth.
Moat:
This is always the one that is hard to define for me. I feel like the Moat that CEB has been able to create is their name with their clients and prospects throughout the world. What I am uncertain about is whether or not that is a deep enough moat to keep all competitors at bay.
MOS:
See the attached screenshots.
Using the historical growth rate, the stock is currently (8/3/05) at $0.40 to the retail $1.00.
Using the Zack's projected growth rate, the stock is currently at $0.33 to the retail $1.00.
I believe if I am doing my calculations correctly, then there is a nice MOS with CEB.
Management:
Decisions such as the dividends paid to shareholders, the inviting nature of their marketing material, and the fact that they are historically posting close to 30% growth are good examples of what I consider good management.
Quote taken from their Careers with Us web page that I feel shows a compelling look at future talent within an organization: "The Corporate Executive Board seeks three attributes in its employees, Force of Ideas, the Spirit of Generosity, and a commitment to Pure Meritocracy."
So it appears to me that EXBD should immediately go into my watch list, and then I will sit and wait for the buying signals. Have I missed something during this process?
Thank you for taking the time to read through my questions.
Have a great day!
Jason Moore
From: Phil
To: Jason
Date: August 15
Dear Jason,
First-class so far. Nice job.
My thoughts as I'm looking at this thing:
First thing every time with the numbers is ROIC - the giant deal killer. If it ain't good, I'm gone. Five year and this year are huge - 23%, 22%. Okay, good enough to dig in.
Next: Look for consistency in the numbers. Like looking for a good horse. You just have to look at it and you'll see it. Sales and EPS for the last ten years - are they consistent or not? Insanely predictable numbers and totally consistent. Another BIG confirmation of some kind of Moat and hot management.
Next, I check the Equity growth rate and consistency - Equity or Book Value Per Share Growth Rate is the single best proxy for future Sticker price growth (intrinsic value to everyone else): These guys have an Insane number for last five years - 98%. Last three: 31%. Makes me real happy about that 27-30% growth rate you plugged in there. Real happy. I LOVE seeing equity moving up with EPS. The best sign of a hot management team, a nice big moat and an exceptional business. We're on the right track here. I can feel it.
Next. Check the Cash flow and debt. No debt. Gotta love that. Free cash flow moving up consistently with the other numbers. That's really hard to do. Another good sign.
The Big Five and Debt look incredible.
You did the MOS thing perfectly. Couldn't improve on it at all. The biz has a huge MOS, selling for $82 with a Sticker of $200 or more.
So now we have to dig in. Do we understand the Moat? The numbers tell us they have a huge barrier to competition right now. So what is it? -- and then we can figure out if it's going to last 20 years or more.
And we like the management's numbers and you did some good digging to find a key comment: they hire employees who are buying into a "pure meritocracy". Dang, man, if they mean that, as future owners we gotta love that! A company full of people who understand that it ain't about who you know, what your race or religion or hair style is, what degrees you have or anything else except, just like the NFL - who's the best for this team. I like these guys already.
So... homework, my friend. You have found what could be our next big winner. We have to see, but this thing could beat WFMI's move from $90 to $132, GOOG from $200 to $280, GRMN from $42 to $55, to name the businesses we popped money into this last six months. So let's see what you come up with on Moat and Management. Call them if you have to. Read the annual reports - management summary - they tell you everything about their business. I'm going to. But you tell me what you find and we'll compare notes.
Thanks for the awesome start on this, Jason. Let's see you finish it out and then lets decide if it's one to ride the river with.
Phil
