About Graham Holdings
Ladies and gentlemen, it’s conglomerate time.
Frankly, there’s not really any way one could guess what this company does given its relatively bland name, however, you might be a bit more familiar with the companies under Graham’s corporate umbrella.
Let’s explore.
Headquartered in Arlington County, Virginia, Graham Holdings is home to a slew of companies including leading diversified educational services platform, Kaplan, the Graham Media Group, which maintains a handful of local news broadcasting networks, Hoover Treated Wood Products (yep, this is where it gets a bit unfocused), an electrical solutions company by the name of Dekko, a leading screw jack manufacturer called Joyce/Dayton, a combustion process company called Forney Corporation as well as Graham Healthcare Group, Clyde’s Restaurant Group, Framebridge, the Leaf Group, Code3 and so many other companies that are listed here.
This company seems to be all over the place, which could end up being a good thing (to a certain degree, that is) or a not-so-good thing, as we have our fair share of opinions when it comes to companies that have a massive amount of seemingly separate in nature businesses and operating segments that could both detract from its focus on bettering its core offerings as well as make room for unnecessary inefficiencies that might’ve not otherwise existed, not to mention that some sectors and industries are going to naturally be more sensitive to recessionary pressures than others, imposing a potential added (and again, unnecessary) degree of uncertainty.
So we’re not in love with this company quite yet, even though it is home to a company of which one of our co-founders is relatively familiar with given that they are a college student, Kaplan, which we are nearly certain runs quite a profitable business on its own, especially as more and more members of the younger generation opt to pursue college or specialty graduate programs such as medical school, law school and other specialized post-graduate programs, as Kaplan is known for offering renowned services in tutoring and exam prep and a few other supplemental offerings.
With all of this to generally consider and get you primed to take a dive into Graham Holdings’ stock (NYSE: GHC), it’s about that time to do just that and get on with our stock analysis so as to determine whether or not this company’s stock is worth considering as a long-term investment.
Graham’s stock financials
In getting things started off, Graham Holdings has a market capitalization of $2.71 billion, a share price of $570.96, a current price-to-earnings (P/E) ratio of 115.93 and an annually distributed dividend of a whopping $6.60.
There’s some good and some bad within these initial figures.
For example, the bad comes in with the company’s excessively high price-to-earnings ratio (i.e., it is way above the standard fair value benchmark of 20), indicating that its shares are well overvalued and I don’t know about you, but it’s going to take a lot for me to even merely consider paying a massive premium for a stock in this current market environment.
The good comes in with the company’s considerable dividend, as it shells out nearly $7 each year for its shareholders, which to us is certainly a plus and something to look forward to as a prospective owner in the company.
Let’s do what any good archaeologist would do and keep on digging.
With respect to Graham Holdings’ balance sheet, its executive team is in charge of around $6.6 billion in terms of total assets along with approximately $2.9 billion in terms of total liabilities, which, to us, is a good overall balance sheet structure as it can seemingly afford to take on a bit more of debt in order to perhaps finance some more growth while also giving us the general confidence that it can viably get through the rest of the current recession and the deepening thereof.
Moving on the company’s income statement, Graham’s total annual revenues have been quite consistent for the most part, floating around the $2 billion and $3 billion area code since 2018, experiencing a sort out of character spike on the higher end of that spectrum to just under $4 billion in more recent years, which was likely due to price hikes across the board in order to counteract inflation, added supply chain-related costs and other factors hurting the economy and the consumers and business that operate within.
Pictured above is a literal conglomerate
In terms of the company’s cash flow statement, Graham Holdings’ net income and total cash from operations have been both consistent and positive since 2018 as well, which is most certainly another indisputable positive behind this company.
Graham’s stock fundamentals
Now, let’s briefly discuss some of the more pertinent ratios and metrics surrounding Graham Holdings, starting off with its listed trailing twelve month (TTM) net profit margin, according to TD Ameritrade’s platform.
Graham’s TTM net profit margin is pegged at a disappointingly low 0.66%, however, the industry’s listed average is a bit more disappointing as it sits down below at -21.21%.
Nevertheless, we are curious as to which industry TD Ameritrade is referencing as an average given the magnitude of Graham Holdings’ operations, however, just focusing on the numbers by themselves, with so many assets working for you, some of which are in highly profitable sectors, turning out a TTM net profit margin of less than 1% doesn’t excite us at all when prospecting this company’s stock.
Suffice it to say some work must be done in terms of perhaps divesting in some of the less profitable sectors or business segments Graham Holdings operates in or some fat has to be cut in order to beef up its TTM net profit margin, at least, from our perspective.
Lastly, in relation to the company’s listed TTM returns on both its assets and investments, Graham’s are both between 0% and 1%, respectively listed at 0.39% and 0.46%, which is yet another indication that this company needs to become far more efficient with its capital and current assets, if not completely dispose of by selling a few of them.
Should you buy Graham Holdings stock?
Shares in the company’s stock (NYSE: GHC) appear to be wildly overvalued, its TTM net profit margin and relevant returns on assets and investments are all muted and this company has so many operating segments that it sort of drives us crazy and proves to a large extent that our initial hypothesis regarding the consequences of being an unfocused conglomerate were correct.
This isn’t about proving anyone wrong, we are just trying to point out that this seems to be a prevailing problem for Graham and it is a large pillar in why we think it would be best to give this company’s stock a “sell” rating.
All things considered, however, we think this company has amassed some very strong assets and thus if it can leverage some of the less profitable ones by selling them off and refocusing its capital on its current, probably highly profitable businesses (again, Kaplan, among others, comes to mind), Graham Holdings would be much better off.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.