Using Inventory to Measure Future Success

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Gail P. is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

As an investor, one of the things I look at as an indicator of strength in a particular company is its inventory.  That is particularly true in companies with retail stores.  The quicker they convert products in their stores and warehouses into money in the cash register, the stronger they?ll be.  Home Furnishing Stores fall nicely into this category and today I?ll take a look at several companies within that industry.  I?ll look at the inventory numbers for each, and whether Inventory turnover relates to an increase in stock price.

It?s easiest for me to think in DAYS Inventory Outstanding.  I know then that if the result is 15, that it takes the company 15 days to turn their inventory into Sales.  While theoretically I ?get? that a Turnover ratio of 15 means that Inventory gets completely sold and restocked 15 times during a year, it is easier for me to think in terms of Days.  I calculate Days Inventory Outstanding as follows:

365 ÷ (COGS ÷ (Average Inventory))

Bed Bath & Beyond

is clearly the largest in this group with a Market Cap of $13 billion.  My first surprise when looking at this stock is that its headquarters is in Union, NJ.  That means that the store where I purchased items for my first household was probably its original store!  I remember when Bed Bath & Beyond opened their first store in Boulder after I moved to Colorado.  I was pretty excited ? kind of how I?m feeling now that Trader Joe?s is planning on opening its first store in Colorado.  Now, however, Bed Bath & Beyond has well over 1000 stores nationwide.   

Days Inventory Outstanding for Bed Bath & Beyond has been trending up from 132 in FY2011 to 140 on 8/24/12 (the MRQ).  The stock is currently trading around $58 and has declined 17% in the past six months.

Haverty Furniture

(NYSE: HVT)
was founded in 1885 in Atlanta and sells furniture and bedding products.   It has a healthy market cap of $373 million and is currently trading around $17.  Its Days Inventory Outstanding has declined by eight days since FY2010 to 104 days on 9/29/12.  Of the four companies reviewed here, Haverty is the only firm which seems to be managing its inventory efficiently.  Haverty is trading around $17, up 63% in the past six months.

BBBY data by YCharts

Pier 1 Imports

(NYSE: PIR)
has been in operation since 1970 and has a market cap of $2.1 billion.  Days Inventory Outstanding for Pier 1 is also trending upwards, which is the wrong direction!  This ratio has increased by 15 days from 135 Days on YE 2/25/11 to 150 Days on 8/24/12.  Pier 1 is set to release its quarterly earnings report on Thursday, December 13.  The average estimate from 12 analysts is earnings of $0.24 per share from revenue of $416 million for the quarter.  Pier 1 is currently trading around $19.50 per share, up 26% in the past six months.

Williams-Sonoma (NYSE: WSM)

has been one of my favorite stores since I discovered it when a near-by mall was renovated in the 1990?s.  Williams-Sonoma was one of the new tenants.  It?s definitely one of the big boys in this industry with a market cap of $4.3 billion.  Days Inventory Outstanding for Williams-Sonoma has also been trending up from 84 days in FY2011 to 92 Days for the MRQ.  Trading around $44, Williams-Sonoma is up 28% for the past six months.

Conclusion:

With the exception of Haverty, it appears that companies in the Home Furnishings Industry are holding on to their inventory longer and longer.  However, there doesn?t appear to be a direct correlation between Inventory Turnover and stock price ? obviously other factors are in play.  I will continue to use this ratio as a measure of overall strength and efficiencies, but will look at other ratios to predict future growth as well.   

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The Key Trends Driving Halliburton?s $41 Stock Value

The firm?s North American operations, which account for about 60% of the Trefis price, are poised to gain from a recovery in natural gas prices, rising US oil production and increasing deepwater exploration in the Gulf of Mexico.

Source: http://www.forbes.com/sites/greatspeculations/2012/12/11/the-key-trends-driving-halliburtons-41-stock-value/

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Julian Assange Wants To Run For Australian Senate In 2013

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Julian Assange, the WikiLeaks mastermind currently holed up in the Ecuadorean embassy in London, has his sights set on a new frontier — a career in Australian politics.

In an interview with Australia's Fairfax media, Assange said plans to register an Australian WikiLeaks party were ''significantly advanced'', and indicated he intended to run as a candidate in the Australian Senate (the upper house of the Australian parliament).

Not deterred by the fact he cannot legally leave a building in Central London, Assange said he would be able to qualify as an overseas candidate New South Wales or Victoria, and his biological father, John Shipton, is in Australia co-ordinating the creation of the party.

While Assange's plan might sound fanciful, there are reasons for him to be confident. The Sydney Morning Herald cites two polls conducted by UMR Research that said Assange would be a "competitive Senate candidate". One online poll conducted by the Age suggested that 73% of readers would vote for Assange.

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Is Teva Pharmaceutical Destined for Greatness?

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what Teva Pharmaceutical's  (NYSE: TEVA  ) recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you're about to see tell Teva's story, and we'll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always reported at a steady rate, we'll also look at how much Teva's free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Teva's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.

Is Teva managing its resources well? A company's return on equity should be improving, and its debt to equity ratio declining, if it's to earn our approval.

Healthy dividends are always welcome, so we'll also make sure that Teva's dividend payouts are increasing, but at a level that can be sustained by its free cash flow.

By the numbers
Now, let's take a look at Teva's key statistics:

TEVA Total Return Price Chart

TEVA Total Return Price data by YCharts.

Source: YCharts. *Period begins at end of Q3 2009.

TEVA Return on Equity Chart

TEVA Return on Equity data by YCharts.

Sources: YCharts and Morningstar. *Period begins at end of Q3 2009.

How we got here and where we're going
Six of nine passing grades isn't bad, but Teva's allowed its free cash flow to fall behind its profit, which gives the appearance of more growth than may really be occurring. Teva's profit margin is also lower today than it once was, and there's a lot of new debt on the books. What will it take to turn those flagging metrics around?

That turnaround might take a little bit longer than expected if Teva's own guidance is to be believed. Underwhelming the Street is never a good sign, particularly since the consensus for next year already projects a decline from 2012's bottom line. Teva's growth seems to hinge largely on the right acquisitions now. Last year, it acquired Cephalon. The latest rumors point to a possible tie-up with Amarin (NASDAQ: AMRN  ) . My fellow Fool Dan Carroll offers reasons why this isn't a good idea for Teva, but what are the next-best buyout candidates -- and if there aren't any, can Teva push forward on its own?

Teva isn't just a generic-drug maker, and acquisitions are likely to only accentuate its transition toward greater patent strength. Multiple sclerosis drug Copaxone is currently the crown jewel in Teva's portfolio, at least until 2015. Both Mylan (NASDAQ: MYL  ) and Momenta Pharmaceuticals (NASDAQ: MNTA  ) have been trying to introduce generic forms of the drug, and will be counting down the days until Copaxone's patent expires. No other of Teva's branded drugs come close to equaling Copaxone's sales, and the generic space is becoming more crowded as Pfizer (NYSE: PFE  ) realizes that multibillion-dollar blockbusters don't happen every year.

However, generic drugs aren't going to fade any time soon. UnitedHealth's (NYSE: UNH  ) management sees a bright future for generics, a logical consequence of tighter cost controls implemented by Obamacare's various provisions. Nor is Teva sitting idly by while Copaxone's patent ticks down. The drug is currently in a new trial as a combination treatment with Biogen Idec (NASDAQ: BIIB  ) , which could give it a slightly longer lease on life should the treatment excel. Teva is also collaborating with fellow Israeli drugmaker Protalix BioTheraputics (NYSEMKT: PLX  ) on therapeutic proteins.

Teva's branded future isn't certain, but today it is one of the more stable stocks you can buy. In these turbulent times, that might be enough to justify a closer look.

Putting the pieces together
Today, Teva has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Teva may yet decide to swallow Amarin. If that happens, Teva shareholders should be aware of the key issues on Amarin's plate. The Motley Fool's premium research report on Amarin answers your questions, whether you're looking for information on Amarin's viability as an independent drugmaker, or are investigating why it might be an ideal acquisition for Teva. Click here now to keep reading.

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal ? and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate ? and why could it make a few in-the-know investors some major profits over the coming months and years?

Enter your email address below to find out what made Jobs so enraged!

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Source: http://www.fool.com/investing/general/2012/12/11/is-teva-pharmaceutical-destined-for-greatness.aspx

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How The Barron's Roundtable Pundits Have Actually Performed

The guys over at Pundit Tracker have put together a pretty little update of the Barron’s Roundtable Pundits.  Some of the pundits are very well know, but don’t have public track records.  So their “guru” status leaves some wondering whether it’s truly earned.  But here’s a nice tracker of their public calls over the last 10 years.  The returns aren’t risk adjusted and most of the sample sets each year are too small to adequately judge, but I was intrigued to see Marc Faber and Felix Zulauf at the top of the list.  These are smart guys (even if a bit hyperbolic at times) who generally have some pretty interesting ideas to offer.  Here’s more via Pundit Tracker:

For a full breakdown of the 2012 picks, click here.

The pundits collectively are slightly underperforming the S&P again in 2012 (9.1% vs 10.0%). Mario Gabelli has been the top performer, thanks to several 65%+ gainers: Fortune Brands Home & Security, Cincinnati Bell, and Gaylord Entertainment. Marc Faber has continued his spectacular performance, with his emerging market bets paying off in spades. Meanwhile, Abby Joseph Cohen and first-time Roundtable member Brian Rogers have both turned in 15%+ gains so far. On the negative side, Felix Zulauf — who had been the best of the group through 2011 — has had his first sub-par year, as his bearish macro take has failed to play out yet in the markets. Finally, Fred Hickey’s recommendation of Marvell Technology has sunk him to the bottom of the rankings.

Here are the updated compounded annual return figures for the periods 2002-12 and 2005-12 (Hickey joined in 2005), with Faber now edging out Zulauf over both time periods:

Updated CAGRs (incorporating 2012 YTD figures)

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Still Plenty Of Time And Good Reasons For Back Door Roth IRA

While there is an income limit for deductions to a Regular IRA, there is no limit for contributions. Anyone can make a non-deductible contribution.

Source: http://www.forbes.com/sites/greatspeculations/2012/12/10/still-plenty-of-time-and-good-reasons-for-back-door-roth-ira/

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Sears Demands Verification Of Order, Yells At You

Theresa is a regular Consumerist reader, and was aware of the complaints our readers frequently share about the retailer. Still, complaints like that are outliers, right? Satisfied customers don’t write to Consumerist. Neither do people who have extremely minor, easily resolved problems. (Usually.) She didn’t think that ordering luggage sets for her nieces would lead to any kind of problems, … [More]

Source: http://consumerist.com/2012/12/11/sears-demands-verification-of-order-yells-at-you/

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REPORT: Shots Fired And 2 Dead In Shooting At Oregon Mall

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A man with an AR-15 rifle and body armor opened fire on bystanders at the Clackamas Town Center in Oregon, officials reported to the Oregonian.

At least 2 are dead and one other is shot.

Reports came in to dispatchers at about 3 p.m. that a man was seen near the food court at Macy's with what appeared to be an AR-15 semiautomatic rifle and possibly body armor.

One deputy said that a full rifle magazine was found on the ground. It is unclear if this is an act of a lone gunman, or a group.

Entrances of the town center have "been locked down" and police are not confirming any details yet. The names of the dead are still being witheld.

Several bystanders have reported seeing people fleeing from the mall.

"The scene outside as I was leaving was just chaos,"  Isabel Valentine of West Linn told The Oregonian. "Police were everywhere, people were crying and screaming, and we still don't know exactly why this all happened."

She had jalmost finished shopping when she left a store, headed toward the foodcourt, and suddenly heard shots fired.

More to come.

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Sears Demands Verification Of Order, Yells At You

Theresa is a regular Consumerist reader, and was aware of the complaints our readers frequently share about the retailer. Still, complaints like that are outliers, right? Satisfied customers don’t write to Consumerist. Neither do people who have extremely minor, easily resolved problems. (Usually.) She didn’t think that ordering luggage sets for her nieces would lead to any kind of problems, … [More]

Source: http://consumerist.com/2012/12/11/sears-demands-verification-of-order-yells-at-you/

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The Most Active And Influential CEOs On Social Media [INFOGRAPHIC]

CEO.com put together a great report on whether CEOs at large companies, represented by the Fortune 500, or those at smaller ones from the Inc. 500, are more active and effective on social media.

There are some interesting differences. For example, Inc. 500 CEOs are vastly more active on social networks. A quarter of the Fortune 500 CEOs on twitter have never tweeted, but 98 percent of the Inc. 500 ones have. However, Fortune 500 CEOs that are active have far greater reach and clout. 

They've put together some of the most interesting facts from the report and about top CEOs in this great infographic:  

NOW SEE: The Favorite Gadgets And Apps Of CEOs [INFOGRAPHIC]

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