Armanino Foods (AMNF) Case Study Part 3 – Valuation
Where Most Evaluations Go To Die
In Part 1 of this case study we did the preliminary analysis of Armanino Foods (AMNF). And I determined that it passed what I require on a preliminary basis to continue researching a company.
But I left some questions unanswered from this first post. So I showed you Why The P/E Is Useless – And How To Calculate EV. And explained Earnings Yield in a short video to finish explaining the concepts Part 1 of this case study.
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In Part 2 of the case study we dug into the financial statements of Armanino.
I made the copy and paste notes I took from its financials available on the blog. And sent out my thoughts on the notes I took exclusive to Value Investing Journey and Press On Research subscribers.
In Part 3 of this case study released today we get to its valuation.
At this point I normally download up to 10 years of financials to read about the company. But since this is a case study on a company I’m not likely to write a full issue about, we’ll skip ahead to the next part. All important valuation.
I need to explain something before we get to valuation though.
If you’ve followed this blog for a while you already know what I’m about to say. But for all the new readers this is important to understand.
Each investor’s valuations are different. Even among us ultra conservative value investors our valuations will vary by a huge margin because we all require different things from each investment.
So having said that, below are the valuations I did on Armanino Foods.
Valuation – Where Most Evaluations Go To Die
Most of the time the valuation stage of analyzing companies is where my analysis ends. And this is how the case study on Armanino Foods ends too.
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I analyzed my research to see how many companies I invest in after researching them so I could prove the above. And while I knew I invested in far fewer companies than I researched. I didn’t think the numbers would be this low.
I found out that I invest in less than 0.50% of the companies I research.
And this is the main point I want to convey in this last post of the Armanino Foods case study…
If you have good filters and stick to them. You will throw away research on a ton of bad/overvalued companies.
But if you patiently stick to your criteria, over the long-term you will find better companies to invest in. Or as Warren Buffett Said:
So it’s now time to look for another case study candidate. If you have any recommendations let me know in the comments below and I’ll research and do a case study on one of them.
Maybe “KING”
Will look into it since you’re the first person to reply. Thanks for commenting.
Benjamin Graham – also known as The Dean of Wall Street and The Father of Value Investing – was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.
Warren Buffett once gave a speech at Columbia Business School explaining how Graham’s record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham’s principles are everlasting. The speech is now known as “The Superinvestors of Graham-and-Doddsville”.
Graham’s first recommended strategy – for novice investors – was to invest in Index stocks.
For more serious investors, Graham recommended three different categories of stocks – Defensive, Enterprising and NCAV – and 17 qualitative and quantitative rules for identifying them.
For professional investors, Graham described various special situations or “workouts”.
The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach.
But Defensive, Enterprising and NCAV stocks can be reliably detected by today’s data-mining software, and offer a great avenue for accurate automated analysis and profitable investment.
company grows book value ~12% CAGR, generates cash, pays a div, doesn’t dilute shareholders, has high margins and high returns, grows earnings and sales consistently.
I get you don’t want to own it now b/c it’s “expensive” but if these trends continue (who doesn’t like pesto?) then today’s price may appear cheap in the future.
and since you wrote this article the price hasn’t budged but EBIT has grown to 6.9 annualized * 10x EBIT multiple + 2.6M in net cash = today’s price.
i put this in the kind of boring well run company one might want to own forever.
Thanks for the comment and question.
I agree with you that Armanino may be a good company to own now. I haven’t reevaluated them since that write up.
But you proved my point of why I didn’t buy them at that time in your comment and may not have realized it.
As an ultra conservative deep value investor I never rely on if’s, maybe’s, or may’s in my analysis. Although there are risks in every investment when I decide to buy into something I want it to be as close to a sure thing as possible.
In your comment you said – “I get you don’t want to own it now b/c it’s “expensive” but if these trends continue (who doesn’t like pesto?) then today’s price may appear cheap in the future.”
I wish I could bold the if these trends continue line and the may appear cheap in the future lines for you.
I don’t rely on the future in any analysis I do. Future prospects are just the icing on the cake to me if they are positive.
When I analyze something I rely on the now, the recent past, and my knowledge of an industry to get to my decision on a potential investment. Never on future prospects.
I also never rely on something growing into a valuation. I want to buy it cheap now. And many times things do change and companies don’t grow into valuations they are projected to grow into.
Your next comment further supports why I don’t do this. I wrote the original article almost a year and a half ago and they are just now worth 10X EBIT.
I would use a multiple of 8X EBIT for them since I don’t see any competitive advantages within the company. So to me they would still be overvalued even though they’ve grown since I last evaluated them.
I’m the first to admit I’m ultra conservative – even when it comes to value investors I’m among the most conservative I know – but this is one of the great things about value investing.
Even within this tiny niche of investors there is still a wide range of possibilities because everyone requires something different from every investment.
This is why I tell – warn 🙂 – everyone I teach you need to find your own processes and figure out what makes an investment great to you personally. Just because it works for you doesn’t mean it will for anyone else.
Hope my explanation made sense. And let me know if you have any further questions.