Is HANS a Buy Now?
Posted on May 12, 2008 at 13:14 PM EDT
HANS (Hansen's Natural sodas) has great numbers. But it's not enough to have great numbers. Remember the 4Ms? The numbers tell us there must be a moat, but "Is it going to last?" is a question that is only answered by the first M -- the Meaning of the business. Do you know this business? If you do, you should be able to handle this question well: Is HANS going to definitely be here and still growing in 20 years? That is the key question.
The numbers tell us there must be a moat, but "Is it going to last?" is a question that is only answered by the first M -- the Meaning of the business. Do you know this business? If you do, you should be able to handle this question well: Is HANS going to definitely be here and still growing in 20 years? That is the key question.
The moat looks good so far. Big natural soda brand. But can it hold long term?
If so, what's the growth rate between now and say 10 years from now? 20% look good to ya? Okay.
So 20% is going to double HANS sales every 3.5 yrs. .9 to 1.8, 1.8 to 3.6, 3.6 to 7.2 billion in sales. 1.2 billion in earnings.
So question: where they going to get that growth from? Still, the most pessimistic analyst thinks 17% growth. That gives HANS a value of over $50. Still a big MOS.
What Does the Market Think?
Another way to get at the growth rate as a check against what you are thinking is to ask what the market thinks by the price it is charging right now.
So what kind of growth rate does this price of $28 give us?
HANS has TTM EPS of $1.51. Price of $28. I'll use a Rule #1 PE of 2x the growth rate. So I just go into a toolset and play. Try some numbers to see what gets me a $28 price. Try a growth rate and double it for the PE.
I tried half the current PE, too. Current PE is 18, so the growth rate for the calculation is 9%. Too cheap a price came out of that. Upped it to 10%, 20 PE. Still too low. But nailed it at 12% and a 24 PE. That gives me a $27 price.
So right now the market is suggesting this is a long term 12% grower. Do you agree with the market, or do you think Mr. Market is being his bi-polar depressed self?
The Emotional Mr. Market
Here's the thing about markets that we love: Mr. Market can get emotionally disturbed. As a stock is going up, his emotion is manic greed, and at some time he will put the stock price far too high.
As a stock is going down, his emotion becomes depressed and the price he offers is far too low.
Those are the times when a person who knows the business and the company can get busy making money by ignoring Mr. Market's fear or greed. When you know the value of HANS, you will know what to do.
Know Value... Make Money
It's really that simple. When you buy a $10 bill for $5, you are looking good. If Mr. Market prices the $10 at $1, you are feeling really good... as long as you KNOW he is offering up a $10. When that happens, as the Big Guys are selling, you are buying as much as you can possibly afford.
If you are not ready to buy at $28 and then double down at $14 and double down again at $7, then you have no business buying at $28 no matter what the numbers say. You just don't know enough about it to be certain enough to double down later. But if you are ready to buy and then buy again, then go ahead and take that swing.
Now go play.
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