MWG valuation
/Following up on my post the other day about Mobile World Group (MWG), I wanted today to do a quick survey of some international retailers and see if we can gain any insight into MWG’s business and valuation by looking at them.
It took a while to put together the comp table at the bottom of the page, but I think it is extremely interesting. There is more work to do, but I think we can gleam a few insights from it:
On an operation margin basis, the company is doing better than most everyone, except for Best Buy. When I talked about Nguyen Kim last week, I mentioned Best Buy and the success of its strategy to increase services revenue. Those revenues are stickier (customers go to Best Buy to buy a computer but they go back to Best Buy to get it un-virused, or when they accidentally erase everything on it). It is helping with their margins.
We can say the same about net margins and EBITDA margins. MWG is above the average, especially if we take out Conn’s, which is a bit of an outlier.
Importantly, all margins are very low. Software companies have amazing margins - MSFT has a 37% operating margin. Real estate companies also have very strong margins, but very high capital costs. Retailers generally have low margins, but high volumes and hopefully good returns on equity.
MWG is actually somewhat expensive on a P/S basis. There’s really no good reason for that, except to say that MWG is quite high here, except for in comparison to Casey’s.
However, in terms of P/E, the stock is cheap! Again, Conn’s is an outlier. If we excluded it, the average would go up to 14.7x, and MWG would look even better.
Overall, it appears that MWG looks especially attractive given that it is also growing revenues about 20% a year. One stock that is somewhat similar is Jarir (4190:AB), an electronics retailers in Saudi Arabia. It trades at 18x P/E with a 6% dividend and a profit margin of around 13%. But even Jarir isn’t growing as quickly as MWG.
I still want to look at a few things: Return on Equity, Return on Invested Capital and other balance sheet metrics (debt, etc). I also want to separate results of the grocery from the electronics stores (if possible) to see if that provides any insight.
Finally, I think it is so important to get a sense of how the store is seen on the ground. If there is buzz around it, do people want to go into stores, is it a fun experiences. These are things that are impossible to quantify but make a big difference. More on that later.
Source: Bloomberg, Company data, Yahoo Finance, Vietecon.com