Steelcase Inc. (NYSE:SCS) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visitwww.capitalcube.com.
Steelcase Inc.’s analysis versus peers uses the following peer-set: HNI Corp (NYSE:HNI), Herman Miller, Inc. (NASDAQ:MLHR), OKAMURA CORPORATION (TYO:7994), Knoll Inc (NYSE:KNL), ITOKI CORPORATION (TYO:7972) and Fursys Inc (KRX:016800). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
Steelcase Inc. trades at a lower Price/Book multiple (1.7) than its peer median (2.9). The market expects SCS-US to grow at about the same rate as its chosen peers (PE of 14.9 compared to peer median of 15.0) and to maintain the peer median return (ROE of 11.3%) it currently generates.
The company’s median net profit margins of 2.8% and relative asset efficiency (asset turns of 1.6x compared to peer median of 1.3x) give it some operating leverage. SCS-US’s net margin continues to trend upward and is above (but within one standard deviation of) its five-year average net margin of 1.2%.
The company enjoys both better than peer median annual revenue growth of 12.8% and better than peer median earnings growth performance 173.0%. SCS-US currently converts every 1% of change in annual revenue into 13.5% of change in annual reported earnings. We view this company as a leader among its peers.
SCS-US’s current return on assets is around the same as its peer median (4.4% vs. peer median 4.8%). This recent performance contrasts with its less than peer median return on assets over the past five years (1.7% vs. peer median 4.1%) suggesting that the company’s relative operating performance is improving.
The company’s gross margin of 32.5% is around peer median suggesting that SCS-US’s operations do not benefit from any differentiating pricing advantage. In addition, SCS-US’s pre-tax margin of 4.1% is also around the peer median suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
SCS-US’s revenues have grown at about the same rate as its peers (-4.8% vs. -4.7% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 14.9. The historical performance and long-term growth expectations for the company are largely in sync.
SCS-US’s annualized rate of change in capital of 0.4% over the past three years is greater than the peer median of -0.4%. This relatively high investment has generated a less than peer median return on capital of 1.8% averaged over the same three years. The relatively high investment and low current returns lead us to believe that the company is betting heavily on the future.
SCS-US’s net income margin for the last twelve months is around the peer median (2.8% vs. peer median of 2.8%). This average margin and relatively conservative accrual policy (1.9% vs. peer median of 0.5%) suggests possible understatement of its reported net income.
SCS-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.
Steelcase, Inc. is engaged in furnishing the work experience in office environments. It offers a comprehensive portfolio of products and services for the workplace. Steelcase designs for a wide variety of customer needs through its three core brands: Steelcase, Turnstone and Coalesse. These brands are focused on the office furniture segment and also extend their capabilities to serve needs in areas, such as healthcare, education and distributed work. The company operates its business through three segments: Americas, Europe, the Middle East & Africa and Other. The Americas segment serves customers in the U.S., Canada and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the brands Steelcase, Turnstone, Details and Nurture by Steelcase. The Europe, Middle East & Africa segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase brand, with an emphasis on freestanding furniture systems, storage and seating solutions. The Other segment includes Asia Pacific, PolyVision and Designt. Asia Pacific serves customers in the People’s Republic of China (including Hong Kong), Australia, India, Japan and other countries in Southeast Asia, primarily under the Steelcase brand with an emphasis on furniture systems and seating solutions. PolyVision designs and manufactures visual communications products, such as static and interactive electronic whiteboards for learning environments and office settings. Designtex provides surface materials including textiles, wall coverings, shades, screens and surface imaging’s marketed primarily to architects and designers for use in business, residential, healthcare and hospitality applications. Steelcase was founded by Peter Martin Wege, Walter D. Idema and David Hunting Sr. on March 14, 1912 and is headquartered in Grand Rapids, MI.
The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.
This article was originally written by abha.dawesar, and posted on Capital Cube.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
Free Report Reveals
Warren Buffet's Secret Recipe
Our Price: $199FREE