Friday, December 18, 2009

Cabela's Remains Inexpensive

I opened a position in Cabela's about two weeks ago at $12.00. At the time it was selling for about 3.5Xebitda and less than book value. I didn't catch the bottom, but CAB has moved up about $2.50 quickly.

Besides being a retailer, CAB has a large credit card bank, World's Foremost Bank, that not only confuses the numbers, but scares investors. Cabela's runs a conservative book of credit and has experienced better deliquencies and charge-offs than it's industry peers. It also securitizes asset backed bonds and, like other banks, faces the prospect of putting those assets back on their balance sheet and having capital available for support. There was a dilution worry.

The company addressed the new accounting issue that causes the securitizations to come back on the balance sheet by increasing their line of credit and making allowances to contribute enough capital to its subsidiary, WFB, so there won't be any dilution. At 4Xebitda[ttm] CAB sells at a discount to competitor DKS and most other retailers. Earnings have been decent even during the past year so, with the credit card concerns waning, the stock could march upward to 6Xcashflow which would be $20. It hasn't been at that price in the past several years, but I'm hoping.

Since I was becoming light headed and buying retailers, I also bought PSMT. It is the reincarnation of Price Club. When Price Club sold out to Costco, the owners opened up a Central American operation that now has 25 warehouse clubs. I've convinced myself that this is an international diversification investment, not another retailer.

I'm attempting to stay nimble as I still do not see a lot of sustainable signs of prosperity.

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