Finally some time to write… the last 11 days were so packed with action that it all seems like one continuum. Since its too long for one post, this post will focus on Springfield MO and Dallas TX. As usual, here is the “Twitter version” (113 characters): Many hours on the road, unexpected encounter in Springfield, useful meeting in Dallas and many business insights.
For those of you who haven’t read the “Getting Ready” post, here is a the route we went through:
We knew upfront that our schedule will be tight, we had to drive from city to city, from company to company in places that were sometimes a 7-hour drive apart. Our first company visit was in Springfield Missouri.
Springfield: An Unexpected Encounter
I bet most of you have never heard of Springfield. Even most of my American friends responded with “where the hell is it and why are you going there?” There is one company that really piqued our curiosity, it is a small company and its located in… you guessed right… Springfield. So we took our car and drove there to meet with the CEO. Since the level of disclosure in small companies’ reports is usually far from satisfactory we felt we should talk to the management to get a better understanding of the business, and so we did. Unfortunately, I can’t elaborate on this investment idea at this time. I can just say that we liked what we saw, the meeting was very helpful and the CEO seems to be the right person for the job. I hope to be able to write about it here in the future.
The CEO highly recommended to visit a store called “Bass Pro Shops.” While we were driving to there, we suddenly saw a huge sign “Everest College” — This sign made Assaf stop the car and shout “COCO!” To explain this, I have to sidetrack for a second. At Eden, we sometimes invest in companies that are in troubled industries. Oftentimes, companies in such industries get oversold in the market due to “negative mood” of market participants and such cases tend to create gaps between the price and the value (“price is what you pay, value is what you get”) of individual companies in the sector. Long story short, the for-profit education sector in the US experienced just that and we made an investment at a company called Corinthian Colleges (stock ticker: COCO), that brings us back to the point when Assaf shouted “COCO.” We pulled over, parked the car and went to visit this Everest campus (the company has many campuses in different locations but we wanted to get a feeling for what its like). The receptionist was a bit shocked to see three investors show up at the door, without having scheduled any meeting but the people in Springfield Missouri are so nice so she arranged for us to meet with the head of academic programs and the head of career services. If you would read how badly companies in the for-profit education sector are perceived by the market you would think that their campuses are places where people are tricked to get government financing that would pay for useless education. However, what we saw was a completely different sight. The managers with whom we met — whom never met with investors before nor did they have any idea they would have their first encounter that day — were highly motivated and proud of what they do, the programs they set up and the career placement statistics that this school posts. We saw well-equipped classrooms where students practiced useful stuff such as computer programming, paralegal and paramedical studies. Although we visited only one school, it left us with a good impression of a dedicated team that strives to serve its community well and make positive impact on students’ life. Few days after that meeting, the company released its quarterly results and the stock plunged by almost 20% — we love it when Mr. Market offers us such companies at even a steeper discount to what we perceive to be its intrinsic value.
Oh, and we did go to the “Bass Pro Shops” — here are the pictures of that amazing retail operation:
Quick Visit to Dallas
Well, it wasn’t really Dallas, it was in the outskirts of the city where we met the CEO and CFO of a small integrated security devices company. The previous day, we debated whether or not we should cancel this meeting because we were afraid that it might be a waste of our time — we had many open questions and we felt like there is no way that this meeting will lead us to invest with the company. Before we interview management teams we always ask ourselves whether this meeting can lead us to making and investment (or selling our holdings) with the company and what is it that would make us do so. CEOs tend to be very charismatic people who know how to sell themselves and their companies, otherwise, they wouldn’t have been in that position to begin with. So, its important to come well prepared to those meetings with a very clear idea of what you are looking for because otherwise you will end up listening to what the CEO is looking for you to hear.
The management team tackled our questions pretty well and left no question unanswered. We were impressed with the way they run the company. One thing we really liked is that when we visited some of the company’s facilities the CEO turned off the lights in when we left a room, he seems to be very frugal. When we asked him about the relatively low level of CAPEX he told us that most equipment and furniture were purchased on the cheap from a few companies down the road that went bankrupt. We still did not invest with that company but its high on our list and since its a small cap I can’t disclose the name yet.
That meeting, of which we had very low expectations, was the complete contrast to a meeting we had with the management team of one of our substantial holdings — Conrad Industries. But that, will be the topic of the next post so stay tuned.