I increased my position on Friday ($68 and change).

I read the heyday of 2020-2023 as an aberration. Margins and profits are down from 2019, and I don’t expect margins to fully recover to their 2019 mark.

I think they eventually fix what can be fixed and some of the cyclical issues (hot labor market, cash strapped sub 40k consumers) normalize. Operating margins returning to something like 6-6.5% percent will make it a profitable decision (8.3% in 2019 if memory serves). But they’re in a tight spot, no doubt.


Off to a good start, up $3 today!

Ignoring 2020-2023 is probably a good idea.

DG	        rev	op inc	op marg	 end price. dil sh o/s. mkt cap	multiple
2015	        20369	1940	9.5%	  $75.06    294,330	22.1	 11.4
2016	        21987	2063	9.4%	  $73.82    281,317	20.8	 10.1
2017	        23471	2008	8.6%.    $103.12    273,362	28.2	 14.0
2018	        25625	2116	8.3%.    $115.43    266,105	30.7	 14.5
2019	        20754	2302	11.1%    $156.99    258,053	40.5	 17.6
avg	         		 9.4%				         13.5
...							
Last 12m        40166	2000	 5.0%	  $80.04    219,997	17.6	  8.8
if 7% marg now	40166	2811.62  7.0%	 $112.52    219,997	24.8      8.8
if 7% AND 13 multiple	2811.62	 7.0%	 $166.14    219,997	36.6	 13.0

In other words, if we got to operating margins of 7% (almost halfway back to average 2015-2019 margins, which were 13.5), then the share price might go to $112.52, up 57% from today's price ($71.71 as I write this). If we got those operating margins AND we got back to a 13 multiple of operating earnings (almost as high as 13.5, the average multiple from 2015-2019), then the share price could be up 132% from today's price.

This is probably slightly optimistic, not only because the headwinds they have right now are not necessarily temporary, but also because their product mix favours consumables a bit more now, even though your point that the product has not changed dramatically is also correct. But it would suggest that today's price gives you some compensation if those optimistic assumptions do work out.

DTB

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