A watch list represents an excellent way to compile a list of investment ideas. Driving around your local shopping mall can give you ideas of companies to research and examine for investment worthiness.
Your local shoe store
Your local shopping mall may contain a member of the shoe store chain Shoe Carnival, Inc. (NASDAQ:SCVL). The roughly $473 million (market cap) company operates 363 stores as of this writing. The shoe store strives for a “carnival” atmosphere complete with energetic music and employees.
A quick look under the hood at the fundamentals reveals that revenue and net income increased 12% and 11%, respectively, last year. Its return on equity resides in the low range at 10% as of the end of fiscal year 2012.
In the most recent quarter, Shoe Carnival, Inc. (NASDAQ:SCVL) experienced a weak spring quarter due to colder weather. Same store sales declined 80 basis points. Revenue increased 4% while net income declined 14% in its most recent quarter. Its long term debt to equity ratio stood at 36%, well below my personal threshold of 50%. Its operating income* exceeds interest expense by a wide 305 times.
Shoe Carnival, Inc. (NASDAQ:SCVL) operates in a highly competitive business marked by many competitors such as Payless ShoeSource, Inc. and Wal-Mart Stores, Inc. (NYSE:WMT). So, pay specific heed to new entrants from competitors and the resulting impact on the company’s fundamentals. Shoe Carnival, Inc. (NASDAQ:SCVL) possesses a strong brand name which gives it a leg up over some of the competition. This fact alone makes it worthy to be on your Motley Fool Watch List (sign-in required).
Home improvement
Your local shopping mall may also include Lowe’s Companies, Inc. (NYSE:LOW). Lowe’s sells everything needed to build and maintain a home. With the housing market recovery now underway this company definitely warrants a place on anyone’s watch list.
Lowe’s Companies, Inc. (NYSE:LOW) increased revenue and net income 1% and 7%, respectively, in 2012. Lowe’s Companies, Inc. (NYSE:LOW) return on equity calculates to 14%. It only paid out 26% of its free cash flow** in 2012 in dividends. As of this writing, Lowe’s pays $0.64 per share per year equating to a 1.5% dividend yield.
In its most recent quarter, Lowe’s revenue declined 49 basis points. Net Income increased 2%. Lowe’s Companies, Inc. (NYSE:LOW), like Shoe Carnival, Inc. (NASDAQ:SCVL), cited cold weather conditions for keeping the consumer at bay; however, management said that sales momentum was increasing toward the end of the quarter.
On Lowe’s Companies, Inc. (NYSE:LOW) balance sheet, cash and investments to stockholder’s equity and long-term debt to equity stand at 11% and 68%, respectively. Its operating income exceeds interest expense by a fairly safe nine times.
Lowe’s Companies, Inc. (NYSE:LOW) management expects revenue and same store sales to increase 4% this year. With the housing recovery and warmer weather bringing out customers to buy items to work on their houses the company shouldn’t have any problem meeting this goal.
The king of burgers
Your local shopping mall may also include a Burger King Holdings, Inc. (NYSE:BKC). Burger King operates 13,000 restaurants (with 97% franchise ownership) serving millions of people juicy hamburgers and fries.
In 2012, Burger King Holdings, Inc. (NYSE:BKC)’s revenue didn’t fare too well, declining 16%, but cost reductions caused the company to increase net income 34%. The company only paid out 9% of its free cash flow in dividends during 2012. Currently the company pays $0.24 per share per year yielding 1.3% in dividends.
Burger King Holdings, Inc. (NYSE:BKC)’s revenue declined another 43% in its most recent quarter. Heightened competitive activity and tough macroeconomic conditions contributed to the decline. Reduction in cost resulted in an increase in net income of 150%. Burger King Holdings, Inc. (NYSE:BKC) experienced same store sales growth in emerging markets such as Europe, Middle East, and Africa as well as the Asian Pacific region.
Burger King Holdings, Inc. (NYSE:BKC)’s balance sheet leaves much to be desired. While its cash position stands at 50% of stockholder’s equity, Burger King Holdings, Inc. (NYSE:BKC)’s long term debt to equity ratio calculates to a staggering 243%. Its operating income only exceeds its interest expense by two times. The rule of thumb for a margin of safety resides at five time interest expense.
Invest in Burger King with caution.
William Bias owns a share of Burger King. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and Lowe’s. William is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Building a Watch List from Your Shopping Mall originally appeared on Fool.com is written by William Bias.
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