Weis Markets stock: Balance sheet trends point to further gains (NYSE:WMK)

helen89

Introduction

Shares of Weis Markets, Inc. (NYSE: WMK) have been on an absolute tear for the past 30 or so months. In fact, as we see in the technical chart below, stocks have remained above their 200-day moving average since that date. significant upward movement at the start of 2020. The question now is whether investors can continue to follow this upward trend.

Although stocks remain well above their 200-day moving average and more than 11% of the float is currently short, that hasn’t stopped stocks from rallying aggressively higher. Suffice it to say that from a technical standpoint initially, Weis Markets shares look more likely to continue rallying than reversing at this point. This is something that value investors have a particularly hard time understanding. Value investors are used to investing against the grain, which usually means that their respective stocks have been beaten hard by the market. However, Weis Markets (despite its relentless rally) is by no means expensive right now. The shares are trading with a sell multiple of 0.49 and a price to cash flow multiple of 10.24. Suffice it to say, if Weis’ operating profit can continue to grow by up to 10% per year based on the multiples mentioned above, then chances are we’re only in the first rounds of this bullish movement.

Technical table WMK

Weis Markets continues to rise (Stockcharts.com)

While many investors focus on profitability metrics and their growth when stocks are in bullish mode, it can be difficult to decipher forecast growth rates solely from this practice. What we like to watch is how Weis Markets’ financial situation has changed during this latest rally, as balance sheet trends can give us some insight into the sustainability of this rally. We will go through a period of the previous nine quarters that corresponds to the significant rise in shares of Weis Markets in recent times.

Cash and investments ST

In most cases, the more liquidity Weis Markets has available, the better, as this liquidity can be used for investment and shareholder reward purposes. Weis Markets reported just over $300 million in cash and short-term investments at the end of its fiscal second quarter. This is an increase of approximately $80 million from the corresponding figure at the end of the first quarter ($220 million) in 2020. All things being equal, a 36% growth rate of cash and ST investments is a solid performer over the past nine quarters given quarterly results. sales increased by approximately 15% during this period. Shares of Weis Markets now trade at just over 7 times its cash position.

Current ratio

Often a business may decide to sacrifice short-term cash to increase returns and, more importantly, to service customers. A high current ratio is a type of insurance in the event that for some reason operations should stop and cash is needed quickly. At the end of the second quarter of this year, the current ratio of Weis stood at 2.07, which means that it has climbed about 21% over the past nine quarters. Even if we remove the retailer’s inventory, the quick liquid ratio currently stands at 1.18 compared to 0.99 for the same measure at the end of the first quarter of 2020. Result; Weis Markets liquidity continues to improve.

Net tangible fixed assets

The lion’s share of Weis’ non-current assets and the retailer’s largest asset item, in general, are its stores or properties, plant and equipment. At the end of the second quarter, this item was $1.15 billion, only $57 million or 5% higher than the corresponding figure at the end of the first quarter of fiscal 2020. suffice to say that sales and earnings growth easily beat 5% in the past 9 quarters, this means Weis Markets assets have reported more revenue in the past nine quarters. This is exactly the trend we want to see because based on current trends, more assets should automatically lead to faster earnings, all things being equal.

return on assets

We see the ramifications of what is discussed above in Weis’ asset profitability metric. This key metric lets us know how much profit is generated from every dollar of available assets. If we just take Weis’ second quarter numbers ($36.3 million in net income on $1.926 billion in assets) and average them over four quarters, we get an adjusted ROA of 7.54%. Doing the same for the first quarter of fiscal 2020 ($26.7 million in net income on assets of $1.716 billion), we obtain an adjusted ROA 9 quarters ago of 6.22%. Another encouraging trend.

Return on equity

Return on Equity or ROE is another solid profitability metric to use in Weis Markets, as the company has no debt and runs a stable number of shares. These two variables (debt and number of shares outstanding) can provide misleading trends in a company’s return on equity profile due to changes in equity. Again, all I’m looking for here is Weis earnings outperformance over the past nine quarters versus company equity and that’s what we’re seeing once again. While shareholders’ equity increased by approximately $186 million or 17.3% to $1.263 billion at the end of the second quarter of this year, net profit increased by $9.6 million or nearly 36% over the past nine quarters. Return on equity over the past four quarters for the record nearly reached 10%.

Conclusion

Weis Markets’ balance sheet trends definitely match the current behavior of the stock’s technical values. Earnings growth outpaces both the growth of the company’s assets and equity, cash is growing, and so is liquidity in general. Also, equity or book value continues to grow. We see the year-to-date highs recorded earlier this year being easily knocked out in this current rally. We look forward to continued coverage.