Beating Buffett

While many companies are struggling to maintain their earnings Value Line has shown steady, if unspectacular, EPS gains in each fiscal year since 2003.

Here are Value Line’s per share figures since FY 2003 [FYs end April 30]:

FY ……. EPS …… Dividend ……Avg. P/E …..Year-End Yield

2003 ….. 2.00 ……… 1.00 ……….. 21.7x ……….. 2.10%

2004 ….. 2.04 ……… 18.50 ……….. 18.2x ……….. NMF

2005 ….. 2.14 ………. 1.00 ………. .17.1x ……….. 2.54%

2006 ….. 2.35 ………. 1.05 ……….. 18.5x ……….. 2.83%

2007 ….. 2.47 ………. 1.20 ……….. 16.5x ……….. 2.31%

2008 ….. 2.56 ………. 1.40 ……….. 12.0x ……….. 2.95%

In the six months ended October 31, 2008, Value Line posted EPS of $1.56 versus $1.23 making trailing 12-month earnings $2.89/share. At yesterday’s close of $23.50, the P/E is now just 8.13 and the current yield is an outstanding 6.8% while CDs and T-bonds are paying 2-3%.

Net profit margins have ranged from a low of 23.2% (FY 2002) to as high as 35% (FY 2000) over the past 10 years. ROE has been running between 29.1% and 48.3% since the special dividend payout in 2004. Return on Assets has ranged from 18.5% to 21.6% since then.

As of October 31, 2008 the company held over $39 million in cash against zero debt and with just 9.98 million shares outstanding.

VALU shares hit a new decade low in yesterday’s trading. At less than half price, and with more than twice its typical yield, I see little remaining downside to these shares. Value Line has just one main competitor (Morningstar) and they have been peacefully coexisting for quite some time without either one threatening the other’s profitability.

A return to even the low end of Value Line’s previous stock price valuations would lead to a better than 50% total return from today’s quote. If the market mood picks up, a double within a year or two does not seem out of the question.

Disclosure: Author bought shares of VALU yesterday (March 12, 2009).