Winmark Corp (WINA) – Closing Long Position – up 45% vs. S&P up 64%

We made Winmark Corp (WINA: $193/share) a Long Idea on October 26, 2017 and then again on October 24, 2018. At the time of both reports, WINA received a Very Attractive rating. We felt the firm could further leverage its asset-light franchise model to drive profits and improve return on invested capital (ROIC), while the stock was trading at a discount and provided quality risk/reward.

This report, along with all of our research[1], leverages our more reliable fundamental data[2] to get the truth about earnings, as shown in the Journal of Financial Economics paper, “Core Earnings: New Data and Evidence.”

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During the three-and-a-half-year holding period, WINA underperformed by 20% as a long position, rising 45% compared to a 64% gain for the S&P 500.

While our thesis played out as expected, in that Winmark’s ROIC improved from 51% in 2017 to 91% over the trailing twelve months (TTM), the stock price has not followed suit. The accelerated shift of U.S. retail towards ecommerce in 2020 and increased competition in the resale market present Winmark with strong headwinds.

Despite it’s Very Attractive rating, we believe this stock no longer presents the same risk/reward it once did and are closing this long position.

Figure 1: WINA vs. S&P 500 – Price Return – Underperforming Long Idea

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on April 30, 2021.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] Harvard Business School features our Robo-Analyst research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

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