Scholastic (NAS:SCHL) — mrkt cap $1.13B; Price $38.09; EV/EBITDA 8
MORE RESEARCH NEEDED. SCHL is a classic good company with bad governance. SCHL has a dominant market share as a publisher for children’s books (think those sold in a book fair) such as the widely known Goosebumps. SCHL’s strong cash flows were spent on non-accretive acquisitions and costly R&D projects that did not pan out. The result is a company that has traded roughly flat over the last two decades. However, the future might look very different given a recent change in ownership. SCHL has recently had more shareholder friendly allocation decisions such as a Dutch Auction tender along with open market share repurchases. More work needs to be done to assess the strategic positioning of their other segments (educational solutions and intl operations) and we will be meeting with IR later this week to glean a better understanding.
Potbelly (NAS:PBPB) — mrkt cap $293mm; Price $9.97; EV/EBITDA 6.8
MORE RESEARCH NEEDED. Potbelly is an American fast casual sandwich operator with 426 stores– of which, 54 are franchised. PBPB went through a C-suite change in 2020 and is now led by former Wendy’s COO, Bob Wright. Their ambitious goal is to reach 2000 locations in the next 8-10 years with roughly 90% franchised. Since the leadership change, they have streamlined operations and improved AUV economics to attract franchisees. They are undoubtedly showing progress in what is a notoriously difficult category. We will do more research into the economics for potential franchisees and the differentiators of the PotBelly brand.
Consumer Portfolio Services (NAS:CPSS) — mrkt cap $186mm; Price $8.83; EV/EBITDA 13.2
MORE RESEARCH NEEDED. CPSS is one of the few well-run (indirect) subprime auto lenders in the U.S. Their secret sauce is having a large sales force that maintains relations with ~8000 auto dealer locations across practically the entire country. They purchase and service a pool of subprime auto loans (~3B) and these loans are typically securitized and sold to institutional investors. Understandably, the term “sub-prime” can have market participants reaching for the Rolaids but CPSS has survived through multiple market cycles and has conservative underwritings standards versus competitors. Rates softening next year should improve net interest margin and a relatively benign economy will see default rates that remain historically low.