Want a Peter Lynch-type stock -- one that is easy to understand -- that has rewarded investors who have held for the long term? Look at Casey's General Stores (NASDAQ:CASY), a convenience store chain in nine Midwest states that caters to smaller towns and the suburbs.
Yesterday, the company reported after the market closed that fourth-quarter revenue increased 23.2% and gross profits were up 15.6%. But here's why this is a Peter Lynch-type stock. The company reports how it's doing against its plan and, get this, has an easy-to-read table on its website that shows same-store sales (the most important retail measure for sales growth) by month for the entire year. It's so simple to see how this company is doing. What a concept!
Speaking of same-store sales for the fourth quarter (compared with the same quarter last year), gasoline gallons sold increased 5.6%, grocery and merchandise revenue increased 6.3%, and prepared food and fountain sales rose 9.8%. That's impressive. And here's a hint of what's to come. May same-store sales, in every category, were up more than the quarter's averages.
The balance sheet reflects a robustly growing company. Cash and cash equivalents increased 7% to $49.1 million, and total debt decreased 12.6% to $150.8 million.
Here is the simple-to-understand plan for fiscal 2006's same-store sales:
- Increase gasoline gallons sold by 2%, with an average margin of 10.5 cents per gallon.
- Increase grocery and other merchandise sales 3%, with an average margin of 31.5%.
- Increase prepared food and fountain sales 5.5%, with an average margin of 60.5%.
- Hold the percentage increase in operating expenses to less than the percentage increase in gross profit.
- Acquire 30 stores, in addition to the 58 Gas 'N Shop locations it has agreed to purchase, and build 10 new stores.
With all that growth and a solid balance sheet, the stock prices in at 23 times trailing earnings, or 27 times earnings net of discontinued operations. Analysts expect the company to increase earnings 15% in fiscal 2006 and 18% the following year, giving the stock a reasonable forward multiple of 16 times expected earnings. There is also a 0.87% dividend to collect while you wait for stock appreciation.
For comparison, competitor 7-Eleven (NYSE:SE) trades at 33.6 times trailing earnings but is expected to grow earnings 20% a year for the next five years -- which greatly exceeds the 11% annual growth expected for Casey's and the 10.5% expected for the Standard & Poor's 500. But 7-Eleven carries a much heavier debt load than Casey's.
If you want an easy-to-understand company with a solid balance sheet, filling a small market niche profitably, Casey's General Stores might warrant a closer look.
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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned, although W.D. can be found frequently at the local 7-Eleven. Click here to see The Motley Fool's disclosure policy .
