An analysis of AutoZone; Nate Anderson calls out Deloitte; Ukrainian art available
1) In Wednesday's e-mail about Denny's (DENN), I highlighted how the company has used its robust free cash flow to buy back 43% of its shares since 2010. Here's an excerpt:
The company issued a lot of stock to stave off bankruptcy in 2003 to 2005... but since the peak of 101 million shares in 2010, it has retired 43% to 57 million shares outstanding today:
However, I concluded that the stock doesn't look like a buy here:
I love franchise businesses... But if I'm going to pay 20 times earnings, I need to believe there's going to be growth – both in units and same-store sales.
So Denny's is a pass because I don't think it can grow much, if at all – in fact, in the past year it closed nearly twice as many units (57) as it opened (32).
But what about a business that's buying back a ton of shares – and is growing? Now that's where you can get what the late Charlie Munger called "lollapalooza effects."
The best example I can think of is AutoZone (AZO), whose stock is up 95 times since it started its share repurchase program in its 1999 fiscal year (beginning on September 1, 1998). The stock has risen from about $25 per share to more than $2,500 per share since then:
How has it done so?
The next chart, in which I normalized everything to start at 100%, shows how...
AutoZone's revenue (the blue line) has risen nicely – up 438%.
The company has expanded margins, such that operating income is up 809% (the brown line).
Then, it bought back an astonishing 88% of its stock (the green line, left axis), meaning that earnings per share ("EPS") were 8 times higher than they would have been had the share count remained constant.
That means earnings per share have grown by an astounding 8,843% (the yellow line).
With a little bit of multiple expansion, that translates into a stock that has been a 95-bagger!
At any point in the past quarter century, all of these drivers were in place and obvious to even the most casual observer. So why did I never own the stock in the 18 years I managed a hedge fund? I wish I could explain why I sat there and sucked my thumb on this one...
But my colleagues at Stansberry Research didn't miss it. They recommended it in our flagship publication, Stansberry's Investment Advisory, in April 2020 at $915.22 per share – and, since then, the stock is up more than 180%.
Congratulations to the team for a great call!
If you aren't an Investment Advisory subscriber, you can find out how to become one and get access to recommendations like this by clicking here.
2) Much of the fraud that unscrupulous management teams commit, costing investors billions, wouldn't happen if auditors weren't all too often sleeping lap dogs – even when presented with overwhelming evidence of malfeasance...
As such, kudos to Nate Anderson of Hindenburg Research for holding Deloitte's feet to the fire:
3) One of my readers, Warren L., purchased a Ukrainian egg as part of my fundraiser and was kind enough to send this e-mail:
The hand-painted egg I ordered arrived yesterday, nicely packed and in perfect condition. It is really quite beautiful.
At age 82 I don't need any more collectables, or I would buy more.
I appreciate that you are helping to support a good cause by making these objects available. I hope more will be sold. I suggest you continue to promote them. It wouldn't take too many of your readers to buy up the balance.
Thanks for your good work.
Thank you for your kind words and good idea, Warren!
There are still a handful of eggs and other pieces of Ukrainian art available here if you would like to make a tax-deductible charitable donation to my campaign.
Roughly twice a week, thanks to the generosity of my friends and readers, I'm buying winter jackets, generators, vehicles, various electronics, and other items the brave Ukrainians desperately need as they fight for their freedom.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.