Pandora AS (PNDZF, Financial)(PNDZY, Financial) is a Danish maker of jewelry that has put up explosive top-line growth and high profit margins. The stock is reasonably priced and pays a small dividend.
I got the idea from an article on Barron’s about SumZero, which is kind of a Facebook (FB, Financial) for stock pickers. The idea came from Billy Duberstein. He sees a 70% return on capital and top-line growth of 20%, and it trades at a price-earnings (P/E) ratio of 18.
The stock trades at 895 Danish kroner ($125.75), there are 117 million shares, and the stock trades at a market cap of 104.7 billion kronre. It takes 7.1 kroner to buy $1. The dividend was 13 kroner, and the dividend yield is 1.45%. In the first nine months of the year, earnings per share were 34.3 kroner. I’m going to just take that times 1.25 (which is low considering the amount of jewelry sold during Christmas), and we come to 42.875 krones. The stock trades at a P/E ratio of about 20, or you can use Duberstein’s 18. In the latest quarter, gross margins were 75.1% and EBITDA margins were 39.9%. Outstanding.
Revenue grew from 6.67 billion kroner in 2010 to 19.36 billion for the trailing 12 months. Free cash flow grew from 1.05 billion kroner to 3.98 billion over that time frame. The free cash flow yield is 3.8%. With that strong free cash flow, 3.9 billion kroner of shares were bought back in 2015 and approval of 4 billion kroner is set for fiscal 2016.
The asset side of the balance sheet shows 812 million kroner in cash and financial instruments and 1.972 billion kroner in accounts receivable. The liability side shows 1.3 billion in accounts payables and 4.77 billion in debt. Very solid balance sheet, especially when you consider the free cash flow.
The U.S. represents 39% of revenues and has 501 concept stores. Europe/Middle East/Africa 45% of sales and 1,033 stores. Asia/Pacific represents 16% of revenues and 268 stores. Much of the jewelry is produced in Thailand.
The company was founded in 1982 by Per and Winnnie Enevoldsen. The stock was taken public in 2010. Pandora is vertically integrated, meaning the jewelry is designed and made by the company and marketed and sold at its stores. The company is known for its little trinkets such as baby shoes, pineapples, hearts, ladybugs and other cute items; 58% of sales come from charms, 17% bracelets, 15% rings and 11% “other.”
Upon looking at Google News, you will see that Pandora is opening stores all over the world and taking control of shops in Europe. You will also see that a salesperson in Tennessee chided a couple for only buying a $130 engagement ring. Also, shares dropped earlier this year when the company's explosive growth wasn’t explosive enough. The market can be so picky.
So here’s my take on Pandora. No doubt, it’s a well-run company with fantastic growth. The product is easy to understand, and the stock is reasonably priced. My issue is how long will global growth continue? The U.S. stock market is at an all-time high, and interest rates are rising. If the economy keeps going, this stock is a buy. If not, it will get sold off and drop substantially.
Disclosure: We own no shares in Pandora.
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