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Citi Trends
Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Cintas Corporation (CTRN) Company Business Citi Trends is a value-oriented retailer selling apparel and accessories to the general public while specifically targeting African-Americans with low to medium income. They aim to sell merchandise at 20% to 60% discounts in relation to department and specialty stores. As of January 2011, they had 461 stores in 27 states. They completed an IPO on May 2005. Competitors: Direct competitors consist of TJX Companies, Ross Stores, The Cato Corporation, and Burlington Coat Factory Warehouse Corp. They also compete with large discount retailers such as Wal-Mart, target, and K-Mart o They are not direct competitors though since they do not focus on their apparel as much as CTR

Potential Risks: Managing Inventory issues may arise o Inventory as a % of Assets increased from 36% to 39.6% during fiscal 2010

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0%

35.9% 12.0% 21.6% 15.5%

30.5% 10.3% 13.4% 10.5%

17.0% 9.6% 11.9% 10.0%

18.1% 10.9% 18.8% 11.1%

10.3% 6.8% 7.2% -2.3%

11.0% 7.2% 7.7% 6.4%

10.9% 7.0% 9.7% 7.6%

10.2% 6.8% 11.0% 3.3%

Profitability ratios have clearly stabilized since the 2008 recession

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Solvency Ratios
Quick Ratio Current Ratio Total Debt/Equity Ratio Long Term Debt/Equity Ratio Short Term Debt/Equity Ratio

0.00 0.00 0.00 0.00 0.00

2002

0.00 0.00 0.00 0.00 0.00

2003

0.50 1.43 1.98 0.12 0.04

2004

0.42 1.38 1.98 0.09 0.03

2005

1.14 2.05 0.76 0.01 0.01

2006

1.22 2.27 0.66 0.03 0.01

2007

1.11 2.40 0.52 0.01 0.01

2008

0.64 1.81 0.52 0.00 0.01

2009

1.25 2.39 0.54 0.00 0.00

2010

0.94 2.27 0.50 0.00 0.00

2011

Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue

0.00 0.0% 0.0% 0.0% 0.0%

2002

0.00 0.0% 0.0% 0.0% 0.0%

2003

3.19 6.3% 0.0% 31.1% 0.0%

2004

2.87 5.8% 0.0% 31.3% 0.0%

2005

1.97 3.1% 0.0% 30.9% 0.0%

2006

1.95 3.1% 0.0% 30.3% 0.0%

2007

2.08 1.4% 0.0% 29.1% 0.0%

2008

2.03 6.9% 0.0% 30.1% 0.0%

2009

1.97 11.4% 0.0% 29.9% 0.0%

2010

2.03 11.1% 0.1% 30.1% 0.0%

2011

Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue

0.00 0.0 #DIV/0! 0.00 0.00 0.0% 0.0%

0.00 0.0 #DIV/0! 0.00 0.00 0.0% 0.0%

0.00 0.0 75.9 8.29 44.04 8.3% 14.4%

0.00 0.0 83.9 4.16 87.77 5.8% 17.8%

0.00 0.0 96.7 3.83 95.22 1.6% 18.6%

0.00 0.0 81.7 3.57 102.22 1.2% 19.2%

0.00 0.0 57.0 3.58 101.98 1.0% 18.8%

0.00 0.0 63.2 3.58 101.98 0.9% 17.7%

0.00 0.0 67.5 3.62 100.77 0.8% 18.3%

79.59 0.3 64.7 3.45 105.84 0.7% 19.5%

Average age of inventory has greatly increased over the years and inventory as a % of revenue has also increased
2008 2009 2010 2011

P/E P/S P/BV P/CF P/FCF

23.00 0.75 2.37 41.99 - 99.13

27.38 0.97 3.01 26.08 44.82

16.96 0.61 1.84 12.36 23.01

8.31 0.28 0.85 9.13 24.33

On a relative multiples basis, this stock is clearly undervalued when comparing it to its last 4 years

Relative Ratio Comparison CTRN does classify some of its competitors in their latest's annual statement. I believe there direct competitors to consist of Cato Corp (CATO), Ross Stores Inc (ROST), and The TJX Companies (TJX).
TJX Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low $ $ $ $ $ 38.10 28,740.00 28,240.00 38.44 24.28 56.9% 19.6 1.2 9.5 14.5 34.3 9.6 1.0% 1.3% 22.1% 19.3% 6.0% 1.2% 6.3% 49.8% 17.6% 18.6% 0.7 1.7 0.24 0.24 27.3% 25.9% 10.4% 9.0% 6.5% 5.6% 18.4% 16.2% 47.4% 44.2% 68.8 5.9 2.9 ROST $ 55.71 $ 12,740.00 $ $ $ 0.0% 19.5 1.5 8.5 15.6 42.2 0.0 1.0% 1.0% 29.8% 16.4% 11.8% 1.5% 9.1% 23.5% 23.6% 27.4% 0.6 1.4 0.10 0.10 27.5% 25.6% 12.2% 9.9% 7.6% 6.2% 20.5% 16.5% 46.5% 39.3% 178.9 5.6 2.7 $ $ $ $ $ CATO 27.43 799.83 557.51 30.77 21.61 26.9% 12.4 0.9 2.2 9.2 0.0 4.7 3.4% 3.5% 8.6% 37.7% -1.2% 0.9% 1.2% -5.4% 10.7% 6.5% 1.9 2.7 0.00 0.00 37.6% 35.6% 10.8% 8.2% 7.0% 5.3% 12.0% 10.0% 18.3% 16.1% 22.3 4.2 1.7 $ $ $ $ $ CTRN 11.76 175.77 128.88 23.90 7.87 49.4% 0.0 0.3 0.9 11.8 0.0 9.9 0.0% 0.0% 0.0% 0.0% 3.7% 0.3% 10.9% -156.5% -147.6% 0.0% 0.7 1.9 0.00 0.00 34.4% 37.1% -2.8% 3.1% -1.6% 2.3% -3.2% 4.8% -5.0% 7.4% 0.0 3.3 2.1

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

On a relative basis, CTRN looks to be partially undervalued in relation to the multiples o May be the case because the financials are not as strong as its competitors as discussed below They do not offer dividends, and all of their competitors do offer a dividend They are seriously lacking in growth figures Their long-term margins are also behind their competitors mostly because they are a fairly new firm when compared to their competitors and increasing sales is their first priority o Eventually, they will need to better manage their COGS and expenses ROA and ROE look disappointing compared to its competition

Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced CMRG based on fundamentals. Based on my assumptions the market has currently priced CMRG to have a owners earnings FCF growth rate of around a 17% - 26% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is massively above its 5 year and 10 year historical averages. In fact over time, CRTN has failed to deliver a good FCF growth over time to shareholders. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 10.5% for the next 10 years with it slowing down in the later years. It may be better to use a 15% discount factor based on the fact that this company is fairly knew and only 5 year data is mostly known. Under my assumptions, I believe the intrinsic value to be around $5.59 on the safe side and on the more optimistic side $8.77.

60 50 40

5 Yr Price vs Intrinsic Value

30 20
10 0 11/07/2005 11/07/2007
Historical Price

11/07/2009
Intrinsic Value

11/07/2011
Buy Price

FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 34.64%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. I have adjusted the model to incorporate a net income growth of 5% - 7% for the next 10 years in order to make the valuation more realistic. According to this model, the intrinsic value is roughly around $7.56 - $11.54. The reason for the huge range and the lower $7.56 is because I used both a 12% and a 15% discount rate. Technical Analysis Looking at the chart below, there does seem to be evident support and resistance levels. It seems as if the public is agreeing with me that in the past this stock was greatly overvalued. A few months ago this stock went lower than its 2009 lows (purple line) which tells me that shareholders are not optimistic on this stock. I view this as an opportunity more than a panic.

Overview I believe CTRN creates a potential good growth story as they are delivering their services to a unique market within the United States. As the economy continues to only grow marginally, this stock may do well. However, due to its limited time in the public markets I believe this stock is worth investing, but should only happen once the stock is significantly lower than its low end of the intrinsic value. If this stock ever reached the $5 level, I could definitely see myself getting involved on this stock. In the future, I do see it going lower than it has the past 3 months. Hopefully, low enough so that I can justify the opportunity and enter a long trade. I have a hold rating on this stock at the current price. Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.