Someone who reads the blog sent me this email:
I see you tweeted about CAW again. What about that company attracts you? I don't see that it is particularly undervalued and I am trying to understand what I am missing.
Sardar Biglari bought into the company. He will now have 2 board seats.
10-year average EBIT is about $5.75 million. So, the long-term average earnings would be about 50 cents a share after tax. Cash and securities is about $1.67. The stock trades around $6. That's maybe a little less than 10 times earnings (after breaking out the cash).
Here's the types of business they are in.
- Dietary Supplement: 33%
- Skin Care: 30%
- Oral Care: 20%
- Nail Care: 10%
Free cash flow tends to be equal to or greater than reported earnings. Cap-ex is virtually zero.
High management pay relative to the company's size hides how profitable the business is.
For example, David Edell and Ira Berman made $2.88 million in 2009. This is against - like we said - an average EBIT of about $5.75 million. So, we're talking more like $8 million+ in EBIT before these two get paid. Other executives are paid more what you'd expect the top folks at this kind of public company would normally make: $300,000 to $500,000.
I checked out the company's products at a local drugstore. Though there will always be lawsuits, I thought it was a decent space to compete in. In the past, I'd researched a couple companies with similar business models. They had better brands. But CCA Industries was much cheaper.
Given the circumstances, I felt Biglari's activism would lead to good things.
It's coattail investing.