Jollibee Stock Review: To Buy Or Not To Buy?
I always wanted to do a valuation of Jollibee (JFC) because their Chickenjoy and Jolly Spaghetti is so delicious.
But what about its stock? Is it mouth-watering too? If you look at the charts, JFC is bearish right now.
The question is, is it the right time to buy now? I see a lot of investors asking this question. So let’s take out our calculators and let the numbers speak for themselves.
Let’s see its 5-yr EPS and financials;
From here, we can see that JFC had good EPS and financials for the past 5 years. They were able to maintain consistent growth on their revenues, net income, retained earnings and total inventory. Their cash & short-term investments took a slight dip but overall, they’re good to go. So now let’s see the income statements;
What I noticed is that JFC’s gross profit margin threads below the minimum of 20% and this suggests that the company is under fierce competition. It’s no wonder because a lot of fast food startups are entering the market nowadays so it makes sense. But with that values, JFC would need to find ways to stay competitive in the food industry.
Their SGA is quite high too almost doubling the 30% recommended valuation. Adding to that, the net income to total revenue is under 10% suggesting a fiercely competitive industry.
With that said, JFC isn’t in a durable competitive advantage but is in a fiercely competitive industry based on its income statement. So let’s see what does the balance sheet say. Does it agree with what the income statements are saying? So let’s find out.
The percentages derived here tells us the exact same message of the income statement. The only good thing I see here is the current ratio which averages above 100% and the ROE which is nearly 20%.
The net income to total assets percentage is quite low too. The total receivables to gross profit is just right the expected percentage but it would be better if it is much lower.
In general, we can conclude that JFC is in a fiercely competitive industry based on the company’s balance sheets.
The net income to capital expenditures from 2010 to 2014 was computed at 74%. JFC spent a lot of capital for expansion. And they also bought back their stocks which is a very good indicator of a company’s growth.
What about its financial health? Not to worry. JFC’s did a lot of saving for the rainy day. Their 5-yr cash and retained earnings are superb and their debts are low.
Now let’s find out if the stock is undervalued or not;
Pre-tax EPS = Net Income before taxes (in millions) / Outstanding shares (in millions)
Pre-tax EPS = 6609 / 1069 = 6.18
JFC’s closing price as of August 11, 2015 is 191.20 Php. The rate of return is;
%RoR = (Pre-tax EPS / Stock price) x 100
%RoR = (6.18/191.20) x 100 = 3.23%
The 5-yr Gov’t bond yield today is 3.852%. So in comparison, JFC’s predicted yield is almost the same as a gov’t bond yield. In theory, this is quite low and we may safely say that JFC is overvalued in terms of its rate of return.
This is the reason why I think purchasing shares of JFC is not a good idea as of now. If I have the money to spend now, I’ll find other companies that have better valuations. JFC’s stock is experiencing a market correction right now so maybe we can still wait a little bit longer to make the price more attractive.