Great read. Love the company facts graphic! There was a Plato's Closet in my hometown and everyone knew the franchise owner to be well-liked and very successful. Can you speak to the -62.9% ROE TTM? Is this a function of macro market dynamics?
Thank you and always great to hear real world anecdotes about the companies we look at!
Regarding the ROE - WINA runs such an asset light franchise model that it actually has negative share holder equity on the balance sheet. The little amount of debt is greater than book value of the assets which = the negative equity. The assets (read cash) generated from operations go straight to the shareholders and don't pile up on the balance sheet to turn equity positive. So the numerator (net income) of the equation is positive, but the denominator (shareholder equity), is negative. ROE is really a useless metric for WINA, only reason it was included is to keep the metrics in the "company facts" consistent going forward.
Definitely a very interesting company to look into. I am not sure what is more enticing buying the stock or becoming a franchisee. Insider ownership and management tenure is impressive clearly showing management is committed to building long term shareholder value.
A couple of questions. What has demonstrated that management is "very open to talking to investors"? Also, for WACC is this justified based on historical cost of capital, as it seems that given the minimal amount of debt should be significantly higher in the current environment?
Definitely an underappreciated franchisee opportunity, does require some effort on the operations front whereas equity holders can sit back and do nothing. Biggest growth hurdle is getting more quality franchisees, its mostly word of mouth today bc management doesn't want to spend the cash on marketing if there isn't a real tangible uptick in franchise interest - so please look into franchising and spread the word :).
Be happy to provide some more color on your questions:
1) They seemed open to talk to investors based on personal experience. Called and left a VM to the contact number on the earnings release and had a meeting set up with the CFO Tony shortly after. Had a very informative and open conversation. Also spoke briefly to the CEO Brett but it appears that Tony is more of the "gatekeeper" for analyst/investor questions.
2) Good question on the discount rate and glad you asked - wanted to clarify more in the write-up but tried to keep the valuation section more tighty for readability.
Its a low Beta stock (little under .8) so using a risk free rate of 3.5% and market risk premium of 5.5% gets you a cost of equity of 7.74%. WACC drops it down to just over 7.4% once the little bit of debt is accounted for. Are these pretty conservative discount rates? Yes, definitely - but I believe justifiable by what I perceive as a business that is much lower risk than your average company. I have a number of issues with the use of CAPM/WACC for a discount rate (that I wont get into) but think it is a good figure as a guide post. In practice I believe CAPM should be used in combination with some objectivity based on how you perceive the riskiness of the cash flows (after a proper analysis).
I am a big fan of how Buffett, a pretty good practitioner, does it. He just slaps a 4-5% discount rate on all cash flows (long term avg. gov. bond rate) and sticks with businesses that are easier to understand and forecast. I am not professing to have the ability to assess a business or risk as well as Buffet but I like this train of thinking. Long winded response to your question but wanted to use it as an opportunity to describe my thoughts/philosophy on the matter.... and thank you for reading!
Stumbled on this post about John Morgan (WINA's former CEO) after publishing the write-up. Its a great read and includes some interesting background on how Morgan turned around the company and helped shape the culture into what it is today.
Thanks for your nice write up and doing the work for us to enjoy. I am just curious are you open to chat more on the company as I am researching about it. It would be great if you could share more on how is the franchisee doing and why couldnt platform like ebay disrupt them? I know you wrote about them briefly but can you elaborate further?
Great read. Love the company facts graphic! There was a Plato's Closet in my hometown and everyone knew the franchise owner to be well-liked and very successful. Can you speak to the -62.9% ROE TTM? Is this a function of macro market dynamics?
Thank you and always great to hear real world anecdotes about the companies we look at!
Regarding the ROE - WINA runs such an asset light franchise model that it actually has negative share holder equity on the balance sheet. The little amount of debt is greater than book value of the assets which = the negative equity. The assets (read cash) generated from operations go straight to the shareholders and don't pile up on the balance sheet to turn equity positive. So the numerator (net income) of the equation is positive, but the denominator (shareholder equity), is negative. ROE is really a useless metric for WINA, only reason it was included is to keep the metrics in the "company facts" consistent going forward.
Definitely a very interesting company to look into. I am not sure what is more enticing buying the stock or becoming a franchisee. Insider ownership and management tenure is impressive clearly showing management is committed to building long term shareholder value.
A couple of questions. What has demonstrated that management is "very open to talking to investors"? Also, for WACC is this justified based on historical cost of capital, as it seems that given the minimal amount of debt should be significantly higher in the current environment?
Definitely an underappreciated franchisee opportunity, does require some effort on the operations front whereas equity holders can sit back and do nothing. Biggest growth hurdle is getting more quality franchisees, its mostly word of mouth today bc management doesn't want to spend the cash on marketing if there isn't a real tangible uptick in franchise interest - so please look into franchising and spread the word :).
Be happy to provide some more color on your questions:
1) They seemed open to talk to investors based on personal experience. Called and left a VM to the contact number on the earnings release and had a meeting set up with the CFO Tony shortly after. Had a very informative and open conversation. Also spoke briefly to the CEO Brett but it appears that Tony is more of the "gatekeeper" for analyst/investor questions.
2) Good question on the discount rate and glad you asked - wanted to clarify more in the write-up but tried to keep the valuation section more tighty for readability.
Its a low Beta stock (little under .8) so using a risk free rate of 3.5% and market risk premium of 5.5% gets you a cost of equity of 7.74%. WACC drops it down to just over 7.4% once the little bit of debt is accounted for. Are these pretty conservative discount rates? Yes, definitely - but I believe justifiable by what I perceive as a business that is much lower risk than your average company. I have a number of issues with the use of CAPM/WACC for a discount rate (that I wont get into) but think it is a good figure as a guide post. In practice I believe CAPM should be used in combination with some objectivity based on how you perceive the riskiness of the cash flows (after a proper analysis).
I am a big fan of how Buffett, a pretty good practitioner, does it. He just slaps a 4-5% discount rate on all cash flows (long term avg. gov. bond rate) and sticks with businesses that are easier to understand and forecast. I am not professing to have the ability to assess a business or risk as well as Buffet but I like this train of thinking. Long winded response to your question but wanted to use it as an opportunity to describe my thoughts/philosophy on the matter.... and thank you for reading!
Thoughtful insight on a company I had never heard of before. Good looks
Thank you for commenting and reading! Cant think of a better compliment than "good looks".
Stumbled on this post about John Morgan (WINA's former CEO) after publishing the write-up. Its a great read and includes some interesting background on how Morgan turned around the company and helped shape the culture into what it is today.
https://www.thewoodshedd.com/posts/2021-04-18-morgan/
Thanks for your nice write up and doing the work for us to enjoy. I am just curious are you open to chat more on the company as I am researching about it. It would be great if you could share more on how is the franchisee doing and why couldnt platform like ebay disrupt them? I know you wrote about them briefly but can you elaborate further?