In a recent article, I highlighted one of my favorite investing tools, YCharts.com, and showed how it could be used to quickly compare a set of companies in a given industry. Today, I want to show how it can also be used to lock onto a single company, using perhaps one of the best examples of a company with incremental growth -- Aflac
A history of excellence
Aflac has a long history, making it well-suited to show how aspects of its business have developed over time. Over the past 21 years, Aflac has gone up almost 2,500%, a rather remarkable 16.5% annual return. Aside from a horrific dive and subsequent recovery from 2008 to today, Aflac's advance has been very steady and reliable. Compare this to Wal-Mart
But anyone can do price charts. What sets YCharts apart is its ability to chart SEC data.
The first thing to notice is that this chart goes back to early 1992. This is impressive because electronic copies of SEC filings were not widely available until around 1993. Prior to that, filings were only available in print or microfiche. Even the SEC's EDGAR database has filings for Aflac only going back to 1994, so to have even earlier data is a testament to YCharts' robustness.
The second thing to notice is that this chart looks very similar to the price chart -- except that, recently, the recovery in earnings per share has outpaced the recovery in stock price. This is best illustrated in -- you guessed it -- another chart.
It turns out that Aflac's P/E has been on the decline for over a decade now, despite a steadily rising stock price. Indeed, today's P/E of 12 sits about 30% below the historic average of 17. But, Aflac being an insurance company, a more apt ratio to use would probably be the price-to-book ratio.
The P/B ratio compares the company's price to the value of its investments rather than its earnings, making it more suitable for cyclical or asset-heavy companies like banks and insurance companies. We can see here that while Aflac's P/E has been falling over the years, its P/B had been rising, up until the financial crisis struck.
In early 2009, a single analyst issued a report warning that Aflac's investment exposure to European banks like The Royal Bank of Scotland
This created an absurd value opportunity for investors. Though YCharts didn't exist at the time, an investor would have been well-rewarded for taking the time to dig through SEC filings manually and do the bit of spreadsheet work necessary to build this chart.
Aflac has fairly consistently beaten the return on equity for other investor favorites in the insurance world, including the vaunted Berkshire Hathaway
"What is essential is invisible to the eye"
There was another reason I decided to load up on shares back then, though, and it highlights one of YCharts' shortcomings. While it is an incredible tool for quantitative and fundamental analysis, you can't quantify love.
As the financial world was collapsing in late 2008, and Aflac's profits were dropping sharply, CEO Dan Amos voluntarily requested that the board of directors remove his golden parachute package, worth three times his annual salary. He said in an interview: "If they don't think I'm doing a good job, they don't have to worry about paying me off." He probably didn't have to worry, though. After becoming one of the first major companies in the U.S. to adopt say-on-pay rules, shareholders voted 93% in favor of his compensation package.
Sure, YCharts has a chart of SGA expenses as a percentage of gross profits, and for Aflac it shows a steady decline over the years, as one might expect, but it doesn't tell you why. It's important to keep in mind that there's just no perfect metric for shareholder-friendly management, and that's what's going to lead all the other numbers.
Fool contributor Jacob Roche owns call spreads on Aflac and call diagonals on Wal-Mart, but holds no position in any of the other stocks mentioned.
Berkshire Hathaway, Markel, and Wal-Mart Stores are Motley Fool Inside Value picks. AFLAC and Berkshire Hathaway are Motley Fool Stock Advisor recommendations. Wal-Mart Stores is a Motley Fool Global Gains selection. Motley Fool Options has recommended a diagonal call position on Wal-Mart Stores. The Fool owns shares of AFLAC, Berkshire Hathaway, Markel, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.