One of my favorite stocks in our All Investable Screener is Cato Corp. (NYSE:CATO).
The company was founded in 1946 and operates approximately 1,300 apparel and accessories specialty stores in 32 states under the names “Cato”, “Versona”, “It’s Fashion” and “It’s Fashion Metro”.
Stores primarily range in size from 3,000 to 8,000 square feet with the “Cato” and “It’s Fashion” concepts primarily in strip shopping centers while Versona stores, which you may be able to see a shop shelving, are located in premier lifestyle centers and power centers.
While the company recently reported its year-to-date same-store sales were down 4%, I thought I’d take a closer look at their statement of cashflows for the six months ending July 30, 2016 to see how the company’s really performing.
Here’s what I found:
| (All amounts in thousands) | ||
| Net Income | 51,761 | |
| Operating Cashflow | 55,007 | |
| Investing Cashflow | -54,429 | |
| CF After Investing | 578 | |
| Dividends | -17,489 | |
| Other | ||
| Total Other | ||
| FX | ||
| Funding Surplus | -16,911 | |
| Debt Capital In/Out | ||
| Repayment of long-term debt | ||
| Short term borrowings | ||
| Issuance of long-term debt | ||
| Net change in short-term debt | ||
| Principal payments under capital leases | ||
| Net Debt | 0 | |
| Equity Capital In/Out | ||
| Common stock repurchases | -7,696 | |
| Purchase of Treasury Stock | ||
| Issuance of Treasury Stock | ||
| Issuance of Common Stock | ||
| Proceeds from employee stock purchase plan | 244 | |
| Excess tax benefits from share-based compensation | 125 | |
| Proceeds from the exercise of stock options | 230 | |
| Net Equity Capital | -7,097 | |
| Cash Movement | -24,008 | |
| Bank Account Open | 67,057 | |
| Back Account Close | 43,049 |
For the six months ending July 30, 2016, Cato had $55 Million in operating cashflows. When you subtract its entire investing cashflow of $54.4 Million, that leaves the company with cashflows after investing of $578,000.
The company then paid dividends of $17.49 Million and repurchased $7.69 Million worth of its own shares. What’s great news for Cato is it already had $67 Million in the bank, so when you subtract the $24 Million for dividends and stock repurchases, that still leaves the company with $43 Million in cash.
If we dig a bit deeper…
If we dig further into the balance sheet we’ll also find that not only does the company have $43 Million in the bank but it also has $262.4 Million in short-term investments and zero debt.
If we add the cash and cash equivalents to the short term investments we get a total around $305 Million. Now here’s what’s interesting. Cato has just $209 Million in total liabilities. i.e. Cato currently has around $96 Million in cash, cash equivalents and short term investments in excess of all its liabilities. Now that’s what you call liquidity.
Valuation
With a market cap of $828 Million, when we subtract the $305 Million of cash, cash equivalents and short term investments that leaves the company with an Enterprise Value of $523 Million or 5.86 times operating earnings, a FCF/EV yield of 7%, and its trading on a P/E of 11.34.
This is a very well run undervalued business, with traditional gross margins of 40% and operating margins of 10%, it has a strong balance sheet, strong cashflows and a ton of cash and cash equivalents.
For FREE access to the Top 30 companies in our Large Cap 1000 Screener, click here.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
