What a difference a day makes!
The market took off to the upside after the Federal Reserve announced a "$200 billion Term Securities Lending Facility" which will assist banks and financial firms to "liquify" their mortgage-backed securities. These securities have been one of the problems facing the financial world. As reported yesterday:
"In recent days some large private funds that had bought mortgage-backed securities with borrowed money said their lenders were demanding that the funds put up more capital to cover the declining value of the securities. Such "margin calls" can force funds to dump securities they hold, in turn driving markets lower.
Carlyle Capital, a $21-billion-asset mortgage securities fund that was hit with margin calls last week, said Monday that it was continuing to talk to its lenders about forbearance.
After regular trading ended Monday, MFA Mortgage Investments , a New York-based fund, said it had sold $1 billion in mortgage-backed securities since Friday to pare back its use of borrowed money."
After the Fed move, markets responded and moved higher with the Dow closing at 12,156.81, up 416.66 and the Nasdaq up 86.42 to 2,255.76, and the S&P 500 closing at 1,320.65 (3/11/08).
With this broad-based rally, it wasn't hard to find a stock 'to like' today that fits my own investment philosophy. In fact, I noticed that an 'old name' Inter Parfums (IPAR) had made the list of top % gainers on the Nasdaq today, closing at $19.65, up $3.37 or 20.70% on the day. I do not own any shares or options on this equity. However, I do write 'old name' because I first posted Inter Parfums (IPAR) on Stock Picks Bob's Advice back on October 6, 2003, about 4 1/2 years ago! At that time, IPAR was trading at $10.98. Based on today's closing price of $19.65, this represents an appreciation of $8.67 or 79.0% since posting.
Let's take a closer look at IPAR and I shall explain why
INTER PARFUMS (IPAR) IS RATED A BUY
First of all what exactly does this company do?
According to the Yahoo "Profile" on Inter Parfums , the company
"...along with its subsidiaries, manufactures, markets, and distributes fragrances and fragrance-related products in Europe and the United States. It produces and distributes prestige fragrance products under various brands, which include Burberry, Lanvin, Paul Smith, S.T. Dupont, Christian Lacroix, Quiksilver/Roxy, Van Cleef & Arpels, and Nickel. The company markets fragrance products, cosmetics, and skin care products primarily under license agreements with brand owners. It also produces and distributes fragrance, personal care, and home fragrance products under Banana Republic and Gap brand names; alternative designer fragrances and personal care products; mass market fragrances under proprietary brand names, as well as a license for the Jordache brand; Aziza line of eye shadow kits, mascara, and pencils for the young teen market; and health and beauty aids under Intimate brand name, including shampoos, hand lotions, conditioners, and baby oils for specialty retailers, mass market retailers, and discount chains in the United States and Canada."
How did they do in the latest quarter?
As is often the case with a sharp move in a stock, it was the earnings announcement after the close of trading yesterday that pushed IPAR stock sharply higher today. Inter Parfums announced 4th quarter 2007 results . Net sales increased 32% to $119.4 million, up from $90.2 million. net income increased 57% to $8.6 million from $5.5 million. Diluted earnings per share came in at $.41/share, up 52% from $.27/share during the period ended December 31, 2007.
The company beat expectations with these results as analysts, according to Reuters Estimates, expected earnings of $.34/share on revenue of $107.6 million. In that same news report, it was reported that the company also raised guidance for 2008 to $1.25/share on revenue of $442 million in 2008. Just two months ago, in January, the company had guided to earnings of $1.16/share on net sales of $437 million. The company had been expected to come in at $1.14/share on revenue of $438.4 million according to Reuters Estimates.
As I have described in other blog entries (for example here and here ), a " trifecta plus " in an earnings report that for me involves a strong report with increasing revenues and earnings, with the particular company exceeding expectations and raising guidance.
IPAR has done all of this! And the market loved the announcement!
What about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials , we can observe the strong and steady growth in revenue from $130.4 million in 2002 to $321.1 million in 2006 and the $360.4 million in the trailing twelve months (TTM). During this time, earnings have steadily grown from $.47/share in 2002 to $1.00 in the TTM (except for a slight dip from $.77/share in 2004 to $.75/share in 2005). The company pays a dividend and has increased it fairly regularly from $.06/share in 2002 to $.16/share in 2006 and $.19/share in the TTM. Outstanding shares are quite stable with 20 million in 2002 and an increase to only 21 million in 2006 and the TTM. In the same time period, revenues climbed almost 200% and earnings were up in excess of 100%.
Free cash flow, while not showing significant growth, is positive at $9 million in the trailing twelve months. The balance sheet is solid with $54 million in cash and $240.0 million in other current assets. Thus, this total of $294 million in current assets, when compared to the $122.4 million in current liabilities yields a current ratio of 2.4.
What about some valuation numbers?
Examining the Yahoo "Key Statistics" on IPAR , we find that this is a small cap stock with a market capitalization of only $401.59 million. the trailing p/e is reasonable imho at 19.63 with a forward p/e (fye 31-Dec-08) estimated at 15.00. With the steady growth in earnings expected, the PEG ratio is very reasonable at 0.95.
Using the Fidelity.com eresearch website , we can see that the Price/Sales (TTM) ratio is reasonable at 0.92 compared to the industry average of 1.73. In terms of profitability, the Return on Equity (TTM) isn't quite as impressive at 12.51% compared to the industry average of 42.83%.
Returning to Yahoo, we find that there are 20.44 million shares outstanding with 9.44 million that float. Of those that float, 988,960 shares were out short as of 2/12/08, representing 10.3% of the float or 13 trading days of volume! Using my own idionsyncratic '3 day rule' for significance, this represents a whole lof of shares out short as of last month, setting up for what may well have been a short squeeze today on the good news of strong earnings results.
As reviewed above, the company does pay a small dividend of $.20/year yielding 1.20%. The company last split its stock on September 17, 2001, with a 3:2 stock split.
What does the chart look like?
Reviewing the 'point & figure' chart on Inter Parfums (IPAR) from StockCharts.com , we can see that the stock has moved very nicely from $2.75/share in 2001 to a high of $32 in March, 2004. the stock has struggled to reach that level since then making back to only $28 in May, 2007, only to dip back to a low of $14 in January, 2008. The stock is trading below resistance levels and it would be nice to see this stock break through $23/share to feel more comfortable regarding the technical appearance of the chart imho.
Summary: What do I think about this stock?
Well, I cannot say that I understand this stock from a Peter Lynch perspective :), but seriously I really do like this stock. The latest quarterly report was quite strong, beating estimates on both revenue and earnings with the company raising guidance above the street's expectations. The company has a pretty solid record of growth the past five years, they have a stable number of shares outstanding, and they even pay a dividend that they have been steadily increasing!
Free cash flow is positive and the balance sheet appears solid.
Valuation-wise the p/e is in the teens with a PEG under 1.0. The price/sales ratio is cheap but the Return on Equity figure is a bit anemic relative to similar companies. In addition, there are lots of short-sellers out there who have already sold shares and with the current price rise, may well be hustling to cover their shorts . Technically, the chart certainly doesn't look like it is getting ahead of itself, but I would like to see the stock move a bit higher prior to feeling like it has broken its previous drift lower. I am not ready to buy shares, but if I were in the market, this is the kind of stock I would be adding to my portfolio!
Thanks again for visiting! If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com. If you have time, be sure and stop by and visit my Covestor Page where my current trading portfolio is reviewed an assessed, my SocialPicks page where my picks from the last year have been reviewed, and my Podcast page where you can download a radio show that I have put together discussing some of the many stocks mentioned on this blog.
Good luck trading and investing tomorrow! Remember, " Don't fight the Fed! "
Yours in investing,
Bob
$21.38 (03/14/08)
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