Timeless Secrets Of Warren Buffett’s Mentor

Now, RDG made a clear pathway to unlocking TravelCenters’ full value:

  1. Conduct a sale-leaseback of the company’s significant real estate assets.
  2. Spin off the company’s growing truck-repair services segment.

Here’s the kicker: RDG estimates the true value of TA’s real estate and truck-repair segments to be worth more than the company’s entiremarket cap, which is currently north of $600 million.

Now, most investors mistakenly assume TravelCenters to be a slow-growth, low-margin company. But that’s not the case.

The company sports a growing chain of 359 quick-service restaurants, 218 full-service restaurants, 34 convenience stores, and 240 truck-repair facilities that contribute a significant portion of the company’s total revenue and profits.

Fundamentals That Graham Would Love

Granted, there’s no guarantee that TravelCenters’ Board will assimilate the changes RDG has requested.

That shouldn’t dissuade investors from including TA shares on a short list of investment contenders, however.

Whether or not the Board inculcates the requested changes, TA possesses attractive valuation characteristics, which gives investors a margin of safety.

The stock currently trades at a trailing P/E ratio of 9.7, a significant discount to the S&P 500 average P/E of 19.6.

But as my colleague, Alan Gula, writes, a more valuable ratio is the enterprise ratio (EV/EBITDA), which provides investors a better valuation of a going concern. That’s because it takes a company’s level of debt into consideration.

And with an EV/EBITDA ratio of just 3.66, TravelCenters of America is well off the average S&P 500 ratio of around 11.

Furthermore, the company boasts strong liquidity, with a current ratio of 2.1.

If Ben Graham were alive today, TA would definitely be on his short list. It should be on yours, too!

Good investing,

Richard Robinson

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Floatmoater 5 years ago Member's comment

Amazes me how many people misunderstand the Buffett strategy. You pick a stock and it goes up 5% – but if he invests in the same stock and it goes up 5%, he gets 10-20% return on that. How? It’s a deep value liability funding strategy inasmuch as it is a value investing strategy. Best explanation I've read on this is from these guys: www.scmessina.com/.../if-warren-buffett-had-to-start-today-could-he-still-reach-his-current-level-of-wealth/