The billion-dollar brand, Buckle (BKE, Financial) has seen its stock price drop from $50 down to $30.54 since April. Now trading at a year low, it looks like a bargain that could produce between 10% and 12% through the next decade. Few guru investors have taken notice, with the largest position going to Joel Greenblatt (Trades, Portfolio) with 207,707 shares.
The company that was founded in 1948 as Mills Clothing in Kearney, Neb., has a long history of delighting consumers. Today, the company has more than 450 stores across the country leading its amazing financial success.
2006
- Revenue: $501 million
- Income: $52 million
- Book: $6.90 per share
- Div: 27 cents per share
2010
- Revenue: $950 million
- Income: $135 million
- Book: $7.33 per share
- Div: 80 cents per share
2015
- Revenue: $1.15 billion
- Income: $158 million
- Book: $8.13 per share
- Div: 91 cents per share
Yet, financial success does not always translate into buying opportunities. In the days of unicorns slow and steady growth is often overlooked. Buckle could have done a better job growing the owner equity (book value) but instead decided to give back much larger dividends. The company has done an excellent job on three other fronts: ROE, CapEx and Gross Margins.
Over the last decade, annual return on equity has more than doubled, annual gross margins have been raised 50 basis points, and the current capital spend rate is half what it was in 2006, sitting at 27% of net income.
Will it triple income in the next decade? Probably not, but despite negative growth over the last 12 months due to declining mall traffic and weaker same-store sales, Buckle still has a brand that people love, and the company remains extremely profitable
It holds a wide selection of brand names and private-label goods around great customer service (4- and 5-star Yelp reviews) and delivery of new merchandise delivered to its stores a few times each week. Financially, the company is superb. Buckle is debt-free with $140 million in total cash and generate over $100 million in free cash flow annually.
This allows it financial flexibility, which many analysts believe will lead to more special dividends, something it's done regularly since 2007. Since it generates a ton of free cash, it can also continue to grow its store count strategically and let the market re-evaluate the shares higher on a price multiple basis.
Weaker same-store sales has been responsible for the decreases in share price. The current fair value is closer to $45, a 50% increase from today’s price. Longer term, the price could rise to $90 per share and beyond, all while paying a decent dividend to shareholders. While American Eagle (AEO, Financial), Aeropostale (ARO, Financial) and Abercrombie (ANF, Financial) all fall, Buckle continues to rise.
