Investing legend Peter Lynch has long counseled investors to "buy what you know." Buy a firm with a story you understand, with a solid business model, and that trades at a reasonable valuation with respect to its prospects. My wife, an intuitive disciple of Lynch, has found success following in the master's footsteps. As of this writing, her Lynch-inspired purchases about four months ago of mall operator General Growth Properties
She uncovered both opportunities in much the same way. She noticed that when those companies came to shopping areas in prime locations that had been nearly abandoned, those areas experienced a tremendous rebirth. Upon financial investigation, we determined that not only were both great companies, but also, thanks to the value price of their stocks, both looked to be excellent investment opportunities.
What's good for the goose ...
Recently, I happened to be in a Buffalo Wild Wings
My first thought upon seeing that crowd was: "This seems a lot like Starbucks
Sizing up the numbers
Of course, traffic alone does not a good investment make. By Lynch's standards, justifying a purchase of company stock requires that there be a compelling investment story. As I'm sure Tim will point out in his bear article, Buffalo Wild Wings isn't nearly the screaming value that my wife's selections were when she found them. Add the fact that B-Dub's projected same-store sales growth looks to be in the same anemic 3%-5% range that Wal-Mart
That said, there are still significant reasons why this company just might be worthy of consideration. First and foremost, as of its most recent quarterly filing with the Securities and Exchange Commission, it sports absolutely zero debt on its balance sheet, and it has enough short-term, liquid investments to pay off all of its liabilities and still have more than $18 million in cash and marketable securities. Additionally, the company's operations gush cash -- about $20 million worth over the past four reported quarters. For a company with an enterprise value (market capitalization minus net cash) of around $215 million, that's some pretty impressive operating cash flow.
Then there's the growth. In spite of stable same-store sales, the chain is expanding its units at a frantic clip -- some 20% this year -- for total annual revenue growth expected in the neighborhood of 25%. Even with the 3.5% additional stock dilution over the past year, that's better than 20% revenue growth per share -- with absolutely no debt.
Of course, the company is spending much of its operating cash flow to pay for its rapid expansion, and that leaves little available net free cash flow. But as long as Buffalo Wild Wings avoids the cannibalization trap that helped snarl the expansion plans of Krispy Kreme Doughnuts
The Foolish bottom line
With solid and stable operations that throw off gobs of cash, decent growth prospects, and a pristine balance sheet, Buffalo Wild Wings is certainly worth considering. As it matures and frees up its cash, rather than reinvesting its money to support rapid growth, this Motley Fool Hidden Gems pick might just start to shine in value circles as well.
At the time of publication, Fool contributor Chuck Saletta's wife owned shares in Kroger and General Growth Properties. He has no financial position in any of the other companies mentioned. The Fool isinvestors writing for investors.