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.
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