Wednesday, October 21, 2015

Buying plant power

Yesterday I added to the existing Whitewave position. I apologize for not getting this post finished sooner. The stock was downgraded by Goldman Sachs and you can see their synopsis here.  While a slowdown in growth is to be expected as the company gets larger I personally believe the sell off is a little over done.

Back in August the company reported Q3 results with guidance for adjusted EPS in the range of 1.14-1.17 for 2015. At yesterday closing price of 40.25 that gives the stock a P/E of 35.30 at the low end of guidance. The company has been expanding it's presence in China, and we know during the quarter the yuan was devalued by the PBOC. However during this time the Euro has stabilized and meandered around 1.10-1.15 most of the quarter. Slightly stronger than what was recorded in Q3. I think the net currency impact will be close to a wash. Hence possibly why Goldman Sachs didn't mention it.  Also Goldman Sachs noted only a slow down in North American sales as a reason for their downgrade. Nothing was noted about international sales which have been growing at a strong rate despite currency headwinds.

The balance sheet isn't exactly solid, but it's not shaky either. Here are a few ratios I check. Data is from the most recent quarter(mrq)

Current Ratio - 1.19
Total Assets/Total Liabilities - 1.49
Total Assets - Goodwill & Intangibles/Total Liabilities - .72

I like to see all the numbers above 1 at an absolute minimum. So with the last ratio under one we must keep watching to see the trend. The company has been on a buying spree the last few years so their Goodwill & Intangibles has increased quite a bit.  Personally I think their Vega acquisition was on the expensive side, but I'm hoping their analysis has found some value that maybe the numbers don't necessarily portray. I think if the acquisitions stop for the next 6-12 months it will allow the company time to steady the balance sheet and increase it's strength.

Furthermore if you look at a basic chart from stockcharts.com you can see the price action has put WWAV very close to oversold territory on both the weekly and daily chart.  That makes me think most of the selling is out of the stock for the near future.

Well that's about it for this one.  I'll update the portfolio as of yesterdays closing price.

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