Is Paradise Inc Another Walter Schloss Play?PARF) another Walter Schloss play? Does the company meet the Schloss simple standard for value that allowed him to outperform the market for over 40 years? Mr. Schloss liked to invest in companies with insider ownership, sells for less than book value, little to no debt, and has been public for over 10 years. I believe that Paradise meets Schloss standard for an investment. Currently, insiders of Paradise owns over 30% of the company shares. High insider ownerships creates an incentive for management to to do what is right in the interest of all shareholders.
Paradise sells and produces candied fruit and molded plastic. Candied fruit is the basic ingredient for homemakers, manufacturing bakers, institutional users, retailers, and bakers. Molded plastic segment sells plastic containers to food processors and candy makers. The company sells its candied fruits products through seven brands in all 50 states.
Seven Popular Brands:
- Dixie Brand
- White Swan
The company has a very heavy management team with three Vice Presidents and one Executive Vice President. Besides having way too many Vice Presidents, nearly all of the board members are related except for one. The company's top management and board are all family. Paradise CEO is over 8o-years old and won't be able to run the company much longer. Current management is running the company like a family farm, not like a corporation with 24% of gross profits going to management. Despite high insiders owning a good chunk of the company hasn't prevented management from failing to serve shareholders.
|Shares Outstanding||520.00 K||Cash||6.24 M|
|Market Cap||12.48 M||Debt||212.72 K|
|Revenue||24.81 M||FCF||$1.78 Million|
Over the past three years, the company has seen revenues slightly decreased a 2.2%/ If you go back 5 years you will see that revenues have increased at a 5.0% rate since 2010. If you go back even 10 years ago, revenues have basically been flat. The company isn't very capital intensive, which is a huge benefit for shareholders. Over the last few years Paradise has spent 12%, 31%, and 11.9% on operating cash flow on capex. In 2014, free cash flow made up 14% of the company's market cap. In 2013 and 2012 free cash flow took a hit from capital capex and other cost.
|Free Cash Flow Statement||2014||2013||2012|
|Cash Operating Cost||24,105||22,800||23,769|
|Operating Cash Flow||1,078||1,055||1,933|
|Change In Working Capital||(847)||555||2,920|
|Free Cash Flow||1,788||169||(1,218)|
|Weighted Avg. Share Diluted||520||520||520|
|Free Cash Flow Per Share||3.44||0.33||(2.34_|
|Earnings Per Share||0.94||1.50||1.93|
(In millions except for per share items)
Paradise is selling for 15x its operating earnings of $1.44/share. The company has $7.79 million or $15.58/share in cash on the balance sheet, and $212 thousands $4.24/share in debt. After subtracting debt from cash on the balance sheet you get $11.34/share in cash. Paradise has a book value of $39.62/share and sells for 0.57x book value.
|Cash and Equivalents||6.237||Accounts Payable||0.795|
|Accounts Receivables||2.274||Accrued Expenses||0.250|
|Total Current Assets||17.986||Total Liabilities||1.462|
|Shares Outstanding = 0.520|
|NCAV = 31.77|
|NCAV 20% Write Off = 24.85|
(All numbers in millions except for per share items)
When valuing the company based on net current asset value, you need to use the company's most current reported financial statements. The company's total current assets on the balance sheet of are equal to $17.96 million. Over 30% of current assets are made up of cash, 12% is account receivables, 50% in inventory, and 2% in other current assets. The company is a classic Graham and Schloss net current asset play. Paradise is selling for less than its Net Current Asset of $31.29/share or 0.72x its net asset value.
The company is selling for less than what it's worth on a per share basic. Paradise is selling for $50 cents on the dollar and offering a margin of safety of at least 50%. The company may be a great long-term investment, however, investors should keep a close eye on management's actions. Paradise may need an activist investor to unlock value for shareholders.
Published on Sep 25, 2015By Cody Eustice
Posted in ...Market Commentary