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The L.S. Starrett Company Message Board

  • stare_at_it stare_at_it Oct 29, 2002 9:39 AM Flag

    Fixing Starrett, Part Five.

    Perhaps it is best said of Starrett, �It is an old-line Yankee concern whose successive generations of management have kept a steady hand on the tiller of progress while navigating through the gales and shoals of business life.� While this may have worked fine in the late nineteenth and early twentieth centuries, is it the best approach for the twenty-first?

    The company is paying dividends at a $5 million dollar annual rate. Starrett lost money last year and did not earn the dividend. A dividend is a signal that a company doesn�t know how to spend all the earnings so gives some back to the shareholders. Many successful businesses don�t pay dividends. They say, �You didn�t buy our stock because you thought we�re a bank - you expect us to grow.� Note that Starrett spent only 1.5% of sales on research and development last year. Many successful companies spend 5 to 10% on R&D - product line extensions and new products.

    The total value of Starrett stock is about half of annual sales. This is sad. According to Yahoo�s Ratio Comparison, others in the industry are selling for 1.3 times annual sales. Starrett would be a $37 stock at this multiple. Could it get there? Not likely under the current regime. The Starrett lineal descendants have ten to one voting rights on their shares and hold all the cards. However, after 120 years there must be a lot of Starrett�s running around out there. They can�t be happy with the stock�s performance either. And�L. S. Starrett is a public company not a private playpen. It has an obligation to passive shareholders to protect their fiduciary interest.

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