Price: $1.19 (3/13/2012)
I found this stock a while back, made a notation to look into them further in my idea notebook and finally got around to it. Bowlin is what I would consider a value mirage, a stock that looks excellent when first found but once under the covers is quite a bit different.
A value mirage is different from a value trap, very different. A value trap is a stock that is a seemingly good value, it lures in value investors and once the pile on is complete rounds them up and takes them to the woodshed. A value mirage is a stock that appears to be a good or great value at first glance but after some detailed investigation is at best fairly priced. These stocks are good from afar, but far from good.
I want to break this post down into two parts, the value thesis, and then the mirage aspect. First I should explain what Bowlin Travel centers are.
Bowlin Travel Centers is a company that owns 10 highway rest stops in the southwest US. The rest areas are more than just a gas station and some bathrooms, Bowlin aims to have destination rest stops. The rest stops are strategically placed on high traffic routes with few services. Each stop has gas, a restaurant and usually a themed souvenir shop. This style of rest area is very common in the west, if you've done any highway travel in the western US I'm sure you've stopped at a place like this. If not it's hard to describe. If you're from the east and have driven down I-95 the Bowlin plazas are similar to South of the Border.
Many of the Bowlin facilities have a wild west theme, some have indian themes and there is one called "The Thing". "The Thing" advertises itself as the "Mystery of the Desert", where you can buy [link to their online store] homemade indian crafts, gold jewelry, pottery and treat yourself to some Dairy Queen. Once you're done with your ice cream you can buy a gun and some luggage and a nice coffee mug. The biggest of these rest stops in the US is an attraction in and of itself, Wall Drug, yes I've been to Wall Drug and yes I ate the famed buffalo burger.
For any non-American readers, or readers who have never driven on the interstate and seen these places my descriptions won't do justice. As far as I know these kitschy places are unique to the US and probably Canada. Simply put they're strange. I wouldn't say I'm an expert I but I have browsed my fair share of indian trading posts and wild west rest stops on road trips.
The Value Case
Here are some quick bullets with an expanded description below:
- Book value of $12m verses a $5.45m market cap
- $3.8m in cash and securities, or 70% of the market cap
- Management decided to initiate a buyback with a target of buying 25% of the shares outstanding.
- EV/CF of 2.14
- Management has actively been selling unused land.
- The company earns more as gas prices rise, and gas is at an all time high juicing earnings.
If I presented you with a company that had the above value proposition most people would jump at the chance to invest. The management seems to be doing all of the right things, buying back stock, selling unused land.
On a valuation basis the company is cheap, trading at a low EV/CF, they're over capitalized, this seems like a perfect value stock.
The Mirage
If you just looked at recent results this company seems undervalued. If you look at the long view Bowlin is doing what they've always been doing.
Revenue 2000: $26m
Revenue 2011: $26m
Cash from Operations 2000: $1m
Cash from Operations 2011: $727k
Price/Book ratio 12/31/2001: 62%
Price/Book ratio 3/13/2012: 45%
The mirage starts to fade away as you realize that Bowlin Travel Centers hasn't changed in the past decade, they're still selling trinkets, gas, and ice cream cones to travelers in the middle of no where. Results have ebbed and flowed over the past ten years, but they've generally been in the same range. The company doesn't break out gas and food separately but I have a note that states back in 2001 50% of their sales came from fuel. So when gas prices are high Bowlin does a bit better, and when they're low their results aren't as good.
The problem is as long as Bowlin keeps the same number of rest stops business will most likely remain the same for the next three years, five years, fifteen years. The problem isn't that there is no catalyst, it's that this is the business. What Bowlin is today is what they'll probably be in ten years. Within this constrain there isn't much management can do for shareholders outside of some buybacks and asset sales. Even the share price hasn't moved in the past ten years, it traded for $1.35 on 12/31/01, and trades for $1.19 today.
At best a shareholder could hope for is a going private or buyout at book value. My concern is that if management wanted to do a going private transaction why haven't they done it already? The company is run by the founder's son who's been at the helm since 1972.
To me Bowlin seems like the perfect family business, it's stable, you could probably earn a good salary and it wouldn't be all that stressful managing the plazas. Unfortunately it isn't really that good of an investment for shareholders. The only thing that would get me to notice Bowlin is if their price cratered, maybe if it fell by 50% or so for no reason. It would be worth considering buying and waiting for the price to rise back to it's seemingly natural resting place at $1.20 or so.
I'd be interested in hearing about other value mirages, leave a company name in the comments.
Talk to Nate about Bowlin Travel Centers
Disclosure: No position
Hey have you taken a look at TA (Travel centers of America? It is the same model. Recently showed up on my radar.
ReplyDeleteI looked at them in the past, don't remember exact details though. I think TA is in a better position, they have more facilities and they are willing to expand if the conditions are right. That said I'm not sure how many new areas of growth there are for companies like this. In theory most of the well traveled routes already have rest areas spaced far enough apart.
DeleteTA might benefit from some bigger contracts with the oil companies.
Hi Nate,
ReplyDeleteJust took a quick look at the stock. I see they don't pay a dividend.
Where is all the FCF going? The value of a company that's predictable without growth is that it generates a pile of cash that either accumulates as retained earnings, increasing the cash per share beyond price per share, or is paid out to shareholders so they can allocate the capital elsewhere.
Looking at the statement of cash flows, it looks like their capex closely tracks their operating cash flows on average. On a P/FCF basis, maybe this company isn't very cheap and that's why they aren't stockpiling mounds of cash?
I'm dubious of the capex, mainly because while these places require some, they probably don't require as much as Bowlin is putting in.
DeleteI think this just another example of a great family business. The capex is probably going towards things like newer coolers, or better shelving. Those are things that an owner with pride in their company might want, but really don't do much for ROI unless they're in bad shape, or the improvement is enormous.
The real question is not if the business is growing or doing anything but how they're allocating cash and how cheap they are(fcf?).Even with a flat price increasing your ownership in the business could be enough(you buy back cheap stocks)...Sure we could make the point that there's no catalyst and it will sit there forever with lower multiples.
ReplyDeleteAt this point we have 3 options:
1.fcf is low and they don't earn adequate returns on capital(they will slowly die and always be "cheap").Liquidating and redistributing assets to shareholders is the only way.
2.We don't know where are the fcf going and it may be a fraud
3.They need to show investors the money,buying back stocks and paying dividends,if they succeed it may not be a mirage
Ok,I just wrote down what I'm thinking and how I'll approach the problem,I will perform my due diligence and come back with an opinion...see you
Good points.
DeleteI think there's an adequate return, but it's for the employees and managers not shareholders. Unfortunately many family businesses are like this. The company is consuming cash to generate cash. To keep going forward they need to keep consuming cash, not leaving much left over for shareholders.
I don't think this is a fraud at all. If you look at their statements it's pretty clear the sources and uses of cash. If you're concerned about this I would consider rewriting the cash flow statements from the indirect to direct method of presentation, just for a better overall picture.
I don't think management cares much about shareholders, although they do publish their statements on their website which is nice. This is a small closely held company that's been this way since the start. I'm really scratching my head wondering why they're public still.
After a few time spent on bwtl I should definitely agree with you...the incentives alignment is poor,as long as the family will earn its salary they'll just give nothing about shareholders.
DeleteBy the way the income statement is enough to forego a conclusion they've been incurring losses without resizing the cost structure.
Nice to meet you Nate btw you're running a nice investing blog
I agree with Nate above. I'd have to be really dubious of a company with only US$26 million of revenues that is a closely held family business. Wouldn't just the basic expenses of remaining public eat up their cash. It just seems like this should be taken private, either by the family or in conjunction with an outside investor. This is a family business, not an investment, definitely a value mirage....
ReplyDeleteI wonder how someone could value the real estate in the middle of the desert. Seems they might have owned these properties since the early 70's or before but it would be tough to find any comp sales in the neighborhood.
ReplyDeleteSeems like cash is slowly building since they got a lower interest rate last year.
Any way it seems like no catalyst until the controlling interest is gone. I think he's about 70 with a wife and 3 daughters(from an old proxy). Could be a long wait