Opportunity In Tandy Leather Factory

Tandy Leather (TLF) is the kind of company that Warren Buffett would invest in. The company has a long history of profitability, and above average return on equity, capital, and assets. Tandy Leather is an unfollowed micro-cap niche retailer that has little to no debt, and over $10 million in cash on the balance sheet. The company is in the retailing and wholesale distributor. Tandy's sales leather and leather craft related items. Tandy's customer base is very broad. The company operates 112 stores in North America and has 3 international stores located in the UK, Australia, and Spain.

The company operates with little to no competitors and has extremely broad loyal customers base.
Tandy's customers base, includes small businesses, wholesalers, and hobbies. The company has no national competitors unlike other retailers who tend to have lots of national competitors. Tandy's has a monopoly of the leather crafting sector offering a wide range of leather products to its customers. The lack of competition makes Tandy the kind of company Warren Buffett would invest in. Buffett likes to invest in companies that produce above average returns and have little competition to erode its earnings base. Tandy's dominates over its niche market and protects the company's underlining earnings power from erudition by competitors.

Tandy may have no competitors this doesn't mean the company wont be effected by short-term problems that will temporary compress its earnings. Well, 2015 is that kind of year for Tandy. The company has reported results so for 2015 that were weak due to a variety of temporary factors. As a result of its weak results, the company has lowered its earnings guidance for 2015. The combination of weak results and lower guidance has resulted in the company's shares falling over 25%. Tandy Leather lowered its 2015 guidance from $0.80/share to a range of $0.60 to $0.63/share.

Tandy Leather has recently announced that the board approved a repurchase program of $1.12 million or around 12% of shares outstanding. At Tandy's current market price, the buyback will ***consumer $9 million of the company's $10 million cash holdings. After the company acquires approval by the board, they will reduce shares outstanding to 9 million. If the repurchase program is successfully executed, this would bring this year's earnings per share guidance up to $.68 to $.72/share from its current projection of $.63 to $.63/share.

The reason for the disappointing earnings for the second quarter was the results of the West Coast port shutdown, international currency translations, and a stronger dollar. Tandy's headwinds will continue throughout 2015 to constrain the company for the year, however, the company will continue to generate profits and strong cash flow.
Market Cap$76.5 Million
Enterprise Value$66.5
2015 Net Earnings$6-6.5
2015 EBITDA$11-12

Tandy Leather is selling for $7.02/share and has a current market cap of $75 million dollars. At its current market price the company is selling for more than 10x its earnings. The company produced operating earnings of $11.5 million or $1.17/share. The company's current guidance for earnings of $0.60 to $0.63/share translates to between $6 million to $6.5 million in 2015 earnings. This estimates that EBITDA will be between $11 million and $12 million for 2015. Based on the company's current guidance, its selling for 10x estimated EV/EBIT and 5.6x EV/EIBTDA. Tandy has produced 10-year average operating earnings of $11.06 million or $1.08/share. The company is undervalued at its current price and worth between $10.80/share to $11.70/share. Tandy is a cash cow that over the last 5-years has produced nearly $20 million in cash from operations. The company has a solid balance sheet and is selling for less than estimated business value, making it a great long-term investment.
Published on Sep 20, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2020. Content published with author's permission.

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