Buckle: Sold Out

I decided today to update my thoughts on Buckle.  If you remember my post from August, I spoke about Buckle selling for a 13.5% op. cash flow yield with great management, conservatism, and great operational performance.  Since August, Wall Street has re-adjusted their thoughts on the company (mainly due to higher same-store-sales reports the last few months) and it has been upgraded by many research analysts.  On top of this, there was a 30% short interest in it when I purchased- this means that 30% of the shares outstanding were being sold short by various speculators betting that the stock would fall further.  I’m guessing that as the stock analysts increased their ratings on the company and the stock price rose, these shorts got hurt & some of them covered their positions.  This caused its price to rise further… I feel like I got a chance to witness a small-scale “short squeeze”, but perhaps the shorts haven’t covered their short sales just yet…

In terms of where Buckle is now, at $1.6 B, it is selling for about a 9% op. cash flow yield ($150 MM op cash flow 2009).  This is enough for me to sell out, I don’t like to speculate on a stock once I believe it has reached close to what I believe is a fair valuation.  Even though the company is growing at about 12% per year, I don’t want to be “paying up” too much for this growth.  Also, the growth is far from certain- you never know where fashion trends are headed, and although Buckle has navigated these trends for 30 years with little trouble, anything can happen.

So, I sold out of my position ($34.10).  I’m sitting now in about 40% cash and looking actively for investments in the insurance industry- it is a work in progress, I don’t know enough yet.  I’d recommend a sale of your stock in Buckle if you own it now. That is, unless you believe, that the company will continue to grow & eventually double in the next 6 years or so in size…  I think this will happen but I feel as though I can find better returns elsewhere.  This used to be “Growth at a Reasonable Price” (GARP).  Now, I’d call it “Growth at an Okay Price”.   9% in year 1, followed with 13% growth or so every year, will end up at about 11% annual returns after 5 years.  I can find better returns than this elsewhere.

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About Andrew Schneck

I am a value investor focused on misunderstood securities and industries, with an eye for long-term stock ownership.
This entry was posted in Buckle Inc., Investment Write-Ups, Stock Updates and tagged , . Bookmark the permalink.

4 Responses to Buckle: Sold Out

  1. Nice call on Buckle. I read your report and the latest 10k, liked the business and valuation, but sat on my hands. I should have followed you into this one obviously. Good job!

  2. schn1eck7 says:

    Thanks Ravi,

    I’ll pass along any new ones in the future. This was my first “Growth at a Reasonable Price” investment and for me, these situations are somewhat less exciting than deeply-discounted investments like Noble. It requires a somewhat better view of the future & relies on assumptions. I can understand why you didn’t follow into Buckle- a few friends of mine also decided to stay away.

  3. Adib says:

    Good call. You possibly Left a bit on the table with another 3$ special dividend. Question:why don’t you want to own a good business with conservative and shareholder friendly management ?

  4. schn1eck7 says:

    Thanks Adib. I realize I left money on the table, but there is no way to predict special dividends. I did try though. Management announced special dividends the last few years in September, but I just got unlucky they chose to announce it in November this year.

    The problem was I had a few concerns in mind and I don’t like concerns when I own businesses. Although this is a good business with the right management, the industry is prone to quick entries & exits (look at my example of how Buckle took out PacSun really quickly). Considering I can’t justify buying an $80 pair of jeans & fashion trends can change quickly, I found myself worried about holding above today’s fair value (even with its future growth prospects). It’s unfortunate I sold right before all the festivities, but I stand by the decision and I hope to learn from it.

    I just haven’t clearly defined my selling strategy just yet. It’s something I’ve been thinking about a lot lately. You’ll notice I haven’t put any articles on this blog about my exit strategy.

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