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Matsuoka Corp (TSE:3611): My Fair Value Estimate


Matsuoka Corp is Japanese company engaged in the garment industry. That’s only relevant to the extent that the company doesn’t appear (from past financial performance) to have meaningful competitive advantages in the industry. What’s of greatest relevance is the differential between its market value and my calculation of fair value. But, before those calculations, I measure the stock via a scorecard to highlight indicators that might make the stock more or less likely to be winner. Correspondingly, some of the pros and cons, as I see them.


Cons:

*Significant debt at >80% of market capitalization, results in negative Net Current Asset Value

*unprofitable over trailing twelve months

*negative operative leverage may be working against firm as operating margins are lower sequentially and year-over-year


Pros:

*Low share price (~966 Yen/share) – institutional investors may avoid the stock (less competition for me when buying)

*Low Market Cap (just over 9b Yen, < $100M USD) – same reason as above

*trading near 5-year low price of ~900 Yen/share


Given those pros and cons, and that the company’s average Return on Invested Capital (~7% over the last 5-years) is underwhelming from my perspective, I deem the company “not good” quantitatively and value it relative to its Tangible Book Value. Over the last 5-years, the company has traded at an average of 1.2X Price to Book, so I could value it at 1.2XTB to be slightly more conservative. But, given the debt load, I’m going to be even more conservative and assign a fair value of tangible book, or ~2926 yen/share. I don’t want to buy at that price, because I’d be speculating that Tangible Book would increase, or someone else would pay a higher multiple of Tangible Book when I want to sell. Instead, I think a reasonably defensive buy price would be .6XTB, or 1756. If the stock simply traded at tangible book, a gain of 67% could be realized from 1756. With the stock trading well below my buy target, and even under 1000 Yen/share, I think shares can be purchased as a small part of a diversified portfolio. Thus, I own shares of Matsuoka Corp.

-V


*Post prepared using data as of 9/29/22

The information in this post has not been audited and accuracy is not guaranteed. The post is for informational purposes only and is not investment advice. Consult a financial professional before making investment decisions. The author’s opinions and positions may change subsequently, without notice.

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