National Research Corp (NRC: $35/share) – Closing Long Position – up 38% vs. S&P up 26%
National Research (NRC) was originally selected as a Long Idea on 10/05/16. At the time of the initial report, the stock received a Very Attractive rating. Our investment thesis highlighted strong after-tax operating profit (NOPAT) growth, industry leading margins, a growing industry, and an undervalued stock price. NRC was also added to our Focus List – Long Model Portfolio on 11/3/17.
On April 17, 2018, shareholders approved a recapitalization plan, in which holders of B shares (NRCIB), the share class we recommended, would receive one A share plus $19.59 in cash. Upon recapitalization, the remaining entity would trade under the ticker symbol NRC.
During the 588-day holding period, NRC (originally NRCIB) outperformed as a long position, rising 38%, including the $19.59/share in cash, compared to a 26% gain for the S&P 500. NRC was downgraded to Neutral on 5/7/18 after we parsed its latest 10-Q. While the firm’s fundamentals remain strong (rising economic earnings, top-quintile return on invested capital (ROIC)), its valuation no longer offers attractive risk/reward. It’s price-to-economic book value (PEBV) ratio has risen to 2.2 and its growth appreciation period is >100 years. For this reason, we are closing this position.
Figure 1: NRC vs. S&P 500 – Price Return: Successful Long Call
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on May 17, 2018.
Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.