Beating the Street by Peter Lynch

Author:Peter Lynch
Language: eng
Format: epub, pdf
Publisher: Simon & Schuster

SUNBELT NURSERY

About 10 seconds after I put away the Pier 1 file, I pulled out Sunbelt Nursery. Often one stock leads to another and the devoted stockpicker is sent off on a new path, the way the trained hound follows his nose and picks up a new scent.

Sunbelt is in the retail lawn and garden business. It occurred to me that the lawn and garden business would benefit from a rebound in housing just as much as the lampshade and dish rack business. Every new dwelling was going to need trees, shrubs, window box flowers, etc., to enhance its appearance.

It also occurred to me, as I pondered this further, that the nursery business was one of the last of the mom-and-pop enterprises that had not been supplanted by franchises or chain stores. In theory, there was a great opportunity for a well-managed regional or national nursery chain to do for flower beds what Dunkin’ Donuts had done for the donut.

Could Sunbelt become that national chain? Operating as Wolfe Nursery in Texas and Oklahoma, Nurseryland Garden Centers in California, and Tip Top Nursery in the Arizona region, Sunbelt already had established itself in 6 of the 11 largest lawn and garden markets in the U.S. According to a Smith Barney research report that found its way to my desk, the company was trying to cater to “the upscale, quality-conscious lawn and garden customer seeking a broader range and quality of plants and supplies as well as a higher level of service than is generally associated with discount-oriented retailers.”

Originally, Sunbelt was spun out of Tandy, along with Pier 1. My first introduction to the independent entity came in August 1991 when Sunbelt management visited Boston in a road show to sell some of the 3.2 million shares that Pier 1 was putting into the market. At this meeting, I picked up a copy of the prospectus, alias the red herring, which gets its nickname from the bright red lines used to highlight the dire warnings that are sprinkled throughout. Reading a prospectus is like reading the fine print on the back of an airline ticket. Most of it is boring, except for the exciting parts that make you never want to get on an airplane or buy a single share of stock again.

Since initial public offerings are often sold out, you have to figure a lot of investors are ignoring the highlighted paragraphs. But in addition to those, there’s useful information in a prospectus that shouldn’t be overlooked.

The initial offering for Sunbelt went off successfully at $8.50 per share. Thanks to these proceeds, the company began its independent life with a strong balance sheet—no debt and $2 a share in cash. The plan was to use the cash to remodel the best of its 98 lawn and garden centers, thereby improving their profitability, and to shut down a few of the duds.

These stores had not been remodeled since the Vietnam War, so there was plenty of room for improvement. The most important

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