* as the overall market is getting higher historically at current levels, we will see more and more people "hunting" harder for value. TA offers true value by any metric and may be one of the easiest to spot on the radar screen (PE 4x)
* Shell natgas- if this deal is inked, it may or may not contribute much to TA (sell more natgas but at the loss of diesel fuel sales?) but what it may do is bring in an entirely new investing sector? Clean energy, politically correct, socially responsible type funds.
* Shell publicity, bond offering exposure all good PR for TA
* we should start seeing the full impact of the accretive earnings from the travel centers TA purchased the later part of 2012.
* conference call coming up in a few weeks may be one of TA's best? For instance, the new travel centers dont add any more back office cost at the corporate later, which means of course all the acquisitions are great to seize the advantages of economies of scale.
* TA being a micro cap with not much volume, once funds start rotating into this $8,000,000,000.00/year revenue company, it wont take much to move the needle North.
* at a 4x PE, look at the earnings yield...investing options - invest in long bonds paying less than 2%? Invest in large cap dividend stocks @ 19x PE paying 1 1/2% dividend? Diversification is a good thing, but buying a profitable, growing company, with stable management in a business that is not subject to technological or creative destruction at a 4x PE is one of the best values I am aware of in the whole of U.S. equities, bar none.
I'm sticking with TA....go big or go home?
How about the "Free Cash Flow" metric? For the last 9 months, TA's free cash flow was negative $22.3 million. For 2011, TA's free cash flow was negative $94.7 million. For 2010, TA's free cash flow was negative $29.6 million. I'm using Cash From Operations less Capex as my free cash flow. I'm ignoring the purchase of the new locations, although the capex from the new locations is included.
Maybe that's why TA had to borrow $100 million at 8.5% rates.
"...the new travel centers dont add any more back office cost at the corporate later (sic)..."
This comment is too good to pass up. You do realize that RMR charges a 0.6% management fee on fuel gross margin + all other revenue, don't you? If the management fee is based on gross margin and revenue, then how can you claim that the new travel centers don't add any more back office cost? Are you saying that the new locations won't have any revenue? If that's the case, then I don't think the new locations will add much to TA's bottom line.
"Invest in large cap dividend stocks @ 19x PE paying 1 1/2% dividend?"
Well, at least the investor would get some income from those. TA can not pay a dividend until it pays off the deferred rent.
Correct they don't have free cash flow. Now that is. And they way the stock is priced is the probability of it are not that great. However, one could view this as they are planting the seeds now with CapEx and new locations which will reap rewards later in terms of free cash flow as presumably they won't need to remodel every year and can start to see some real cash flow at some point. All it will take is some indication that this may indeed happen and this will no longer be a $6 stock. It has tremendous leverage and can't see why it won't be a $15 stock if things go well. That is upside. Downside, not sure how much lower it can go. Maybe $3 or $4 unless some disaster strikes. So 50% downside - very pessimistic and 150% upside. I'm betting on the upside.
you always have good points and you make us all think, rather long/short, trading, etc.
As far as cash flow, you know, and I know, that TA has spent tons of cash remodeling and upfitting the newly acquired travel centers. This may continue so long as they keep acquiring which is fine by me, especially if TA continues acquiring sites at about 4x cash flow as the ceo mentioned in a CC. Now if someone didnt know better they may think from reading your message that TA was not really profitable and was not generating positive cash flow.
And the issue that TA cannot pay a dividend being a negative?
why would any investor desire a dividend from a a small cap stock, with no history of ever paying a dividend (so no expectation to recv any), but is trading a 4x/earnings and growing? Keep the 1 1/2% dividend and I'll continue staying with the 4x PE. Anyone who bought TA betting on a dividend never did their homework. Buy Pfizer then.
Like Conrad Hilton said, if you are going to sail big ships, you have to go where the water is deep.
Why should they have free cash flow? If they have an opportunity to invest money in certain future growth, why shouldnt they? Free cash flow (as you define it) is important for mature and declining companies, but for growing companies, there is nothing wrong with investing all profits into capex for future growth.
The situation becomes even more clear when one considers that TA is not even allowed to give money back to the shareholders for the next ten years. So what should they do with their free cash flow if they had any? Keep it in a bank?
What they should be doing is investing in new travel centers to grow profits so that when they pay back the deferred rent they will have a lot of fcf to pay us a fat divident as a reward for waiting ten years. This is exactly what they are doing.
Art, should you not just short TA then? At 4x earnings if you feel that strongly about it, go short in a big way?
As the old adage goes the difference between a conversation and a commitment is a check.