MAXS or Jollibee, which is better?

Part 3

Disclosure: I do not have shares in any of the companies mentioned in this article and don’t plan to initiate purchase within the next 24 hours. I would not receive any compensation for doing this article. I am not a professional financial analyst. This is just a hobby. Lastly, my work is not error-free, but I strive for it to be.

If you are interested in this similar approach to investing I wish to invite you to this Facebook group

(https://www.facebook.com/groups/SeekingValue/?ref=bookmarks)

Start

If you’ve missed my previous articles or on how I arrived with this comparison see the following links:

Part 1 Jollibee or McDonald’s shares, which is better?

(https://perennialinvesting.wordpress.com/2015/09/07/jollibee-or-mcdonalds-shares-which-is-better/)

Part 2 MCD in the Philippines, Jollibee, and the others

(https://perennialinvesting.wordpress.com/2015/09/07/mcd-in-the-philippines-jollibee-and-the-others/)

Okay, let’s dissect and compare JFC’s and MAXS’ financial numbers over the past five years (2010-2014).

Warning: these may be a lengthy discussion and may take few more minutes to digest.

Let’s start with Net Income.

1

JFC clearly won this. This would trickle down when we discussed the amount of dividends returned to shareholders later.

Next, Gross Profit Margin.

1

It appears that MAXS is a little bit more volatile when compared to JFC, but both are almost at par. Remember, Buffett requires >40.

Next, Operating Margin.

1

MAXS clearly lags JFC’s ratio on this one.

Next, Net Profit Margin.

1

JFC still > MAXS, I prefer seeing >8% (lucky number). But for the mean time, I guess JFC has this in the bag too.

Next, Return on Equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested (Investopedia).

1

Buffett (in 1972) stated that he required at least 14%. MAXS was on its way, but had underformed recently.


Next, Debt to Equity ratio. The lower the better. Lesser debt is better.

1

JFC is clearly a winner on this one too.

Next, Dividends paid.

1

A company can provide dividends from its earnings or by borrowing outside to fund it. With net income of about 5 Billion pesos, JFC could clearly provide its shareholders more dividend than MAXS can. Nevertheless, dividends return by JFC is inconsistent and fluctuating year over year. I prersonally look for steady and increasing amount of dividend over the years so I can see that there is actual dividend growth taking place.

In summation, JFC had given 10,937 Million pesos (as dividends) to its shareholders over the past five years, while MAXS had given 194 Million pesos.

Now, should you purchase JFC shares right now? That is the tough question. I guess the right question would be, are you willing to pay the price?

Warren Buffett once said, “price is what you pay, value is what you get.”

At the current price of JFC, would you have the value you are seeking for? Or you’ve purchased a Samsung S6 Edge a day before a nation-wide sale with 30% discount off. I am not saying tomorrow or soon JFC’s market price will go into a discount from today’s price, but hopefully you understand what I’m trying to say.

According to Robert Shiller, no one can exactly predict were the market price would go, and only hindsight would prove one correct.

As of September 7, 2015 11:30 AM, JFC’s share price is at 188 pesos per share. This correponds to a PE ratio of 37.

Benjamin Graham (professor of Warren Buffett) would only purchase a company at <15 PE ratio. This means he is willing to pay less than 15 times a company’s earnings for it to be included in his portfolio.

Another good reflection about the PE ratio is that, A stock that has a P/E ratio of 15, for example, tells you that it will take 15 years of the company’s earnings at the current rate to add up to your original purchase price. See link (https://discoveroptions.com/mixed/content/education/articles/peratio.html)

As of June 19, 2015, the forward-PE ratio of the top 30 companies of the Philippine composite is at 19.5. Now, compare that with JFC’s. The Philippine composite is considered the third most expensive stock exchange in the world. See link (http://www.cnbc.com/2015/06/18/this-may-be-the-worlds-most-overpriced-market.html)

If Graham was alive today and for all the right reasons had considered whether to invest in JFC or not just by looking at the PE ratio alone. He would frankly reject this entire research I made. With PE ratio of <15 (let us say 14), JFC share price is to be at 70.7 per share.

1

One may say that this is impossible! Even at 2011 levels, JFC’s market price was hovering in the 90 peso mark. Nevertheless, this is the most conservative approach in buying shares of the company. I may soon make articles about applying weighted average cost of capital or WACC approach or maybe earnings before interest, tax, depreciation and amortization or EBITDA approach on certain companies.
But, for now, I would (personally) stay away from JFC until it offers a good discount from today’s share price.

Thanks for reading. Happy investing!

Mark Y.

Part 1 Jollibee or McDonald’s shares, which is better?

(https://perennialinvesting.wordpress.com/2015/09/07/jollibee-or-mcdonalds-shares-which-is-better/)

Part 2 MCD in the Philippines, Jollibee, and the others

(https://perennialinvesting.wordpress.com/2015/09/07/mcd-in-the-philippines-jollibee-and-the-others/)

If you are interested in this similar approach to investing I wish to invite you to this Facebook group

(https://www.facebook.com/groups/SeekingValue/?ref=bookmarks)

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