I wanted to update quickly here on NROM, my pick for 2013 and largest position in my portfolio. It has made the majority of my gains this year– up over 100%, but I think it goes higher from here.
I think the best way to value NROM at this point (given the success in the T&B segment) is to look out a few years, estimate the # of T&B’s, and value the company on a FCF yield basis (which will likely be approximately the dividend yield). This is somewhat of a simplification of course (dta’s wont last forever for example), but I think this is a good way to gauge value in a variety of scenarios.
I see the stock worth:
-$1.22 even if there are zero T&B’s
-$1.78-$2.37 if they simply maintain the 29 signed stores and it takes two years to fully open/ ramp up
-$2.12-$2.83 if they get to 60 T&B’s in two years fully open/ ramped up
-$2.52-$3.35 if they get to 100 T&B’s in four years.
Needless to say, NROM is still my largest position and I am likely not selling anytime soon.