"I can't quite agree with you here. The numbers that catch my eye most with this company is the NPAT line which, for the most part, represents between 1 and 2% of Revenue. The distributors, SNL and GUD, mostly manage numbers between 7% and 15%."
That's somewhat flawed thinking, for two reasons:
1.) DDR's NPAT margin might be skinnier than SNL's and GUD's but absolute level of NPAT margin is not as important as is the consistency of that margin. In DDR's case the NPAT margin demonstrates very little variability, coming in between 2.5% and 3.0% over the past 5 years. Whereas for GUD and SNL it has varied more meaningfully (between 10% and 14% for GUD and between 6.8% and 10.1% for SNL). If DDR's low NPAT margin was all over the place, it would be a problem, but it isn't: it's quite consistent and predictable.
2.) Margin analysis on its own, without consideration of asset intensity, is not very meaningful. For example, while DDR's margins might be lower, it operates with far higher rates of asset turnover : DDR's asset turn is a rapid >3.0 times, while for SNL it is 1.5 times and for GUD it is a mere 0.55 times. So DDR might have the lowest profit margins, but its disproportionately lower asset intensity means its ROE is higher than the others (44%, compared to 36% for SNL and 12% for GUD).
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DDR Price at posting:
$7.73 Sentiment: None Disclosure: Held
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