One of the companies that caught my eye in Jeremy Siegel’s list of top-performing firms, is Tootsie Roll Industries. This company makes a range of confectionary including: Tootsie Rolls, Charleston Chew, and Andes Mints. After a quick look on Morningstar I thought that it looked potentially worth investigating, because of its sector, size and longevity, but a Google search revealed some interesting facts, which give pause for thought:
- Tootsie Roll Industries is run by a 94-year old man (Melvin Gordon) and his 82-year old wife (Ellen Gordon). MG is currently the oldest CEO of a listed business on the NYSE.
- The company does not hold quarterly earnings calls or talk to industry analysts. Perhaps a touch of cantankerousness there (although Charlie Munger has already cornered that market). Besides, wouldn’t you get tired of answering the same questions every three months after fifty years?
- The Gordons have not given a single interview for years and control approximately half of the voting by means of class “B” shares.
As you would expect from a 94-year old, the company is run very conservatively, having a current ratio of 4 ($240m current assets and $60m current liabilities) and long-term debt is a mere trifle at $8m relative to working capital of $180m. According to Morningstar, Tootsie Roll has cash on the balance sheet of $122m.
The Gordons have made a lot of acquisitions over the decades and everything in their portfolio looks to fit perfectly–have a look at their website if you are interested in their products; take it from me, they are very much of a type–a nine year old would be happy.
This company, in so many ways, looks perfect.
The Tootsie Roll
And so my curiosity led me to the US foods shelf of my local Tesco where I was fortunate to find the famous Tootsie Roll, and even more fortunate to find it on special offer (80p, reduced from £1.30). I like a bar of chocolate and so, in the interests of financial research, decided to give it a go. I have to say, I was pleasantly surprised. The roll itself comes appealingly packaged in brown and silver foil and, inside the foil, is sheathed on three sides by a cardboard rail. The roll (more of a rectangle really) is cocoa-covered and of mysterious, vaguely fruity flavour. The essence of the Tootsie, however, is its impeccably-judged chewiness, which is a deliciously mouth-watering torment. You think: this is too much, but I will just give it another good chew, and then another, and so on. Yet the Tootsie keeps regaining its original form; it is remarkable. Willie Wonka would have been proud. The Tootsie Roll is a devilishly enjoyable experience.
The Valuation
Sadly, this is where the happy tale ends. Tootsie Roll Industries looks just too expensive. A glance at its revenues on Morningstar, show that they have barely budged in the last five years. Couple this with its selling multiple of 28 and I can sense Ben Graham spinning in his grave at the monstrous affront to value that would take place, were I to plunge. The price would have to halve before it would be in a zone of reasonableness. Shame, because I would love to buy some of these shares and put them in the back pocket forever.
Nevermind, I might just treat myself to another Tootsie Roll instead.
PS: If the Gordons are looking for some growth, they could do worse than market this bar more forcefully in Britain and Ireland. It would definitely roll most of the competition.
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Disclosure: At this time I have no position in TR.
Disclaimer: This post is not a recommendation to either buy or sell. Please consult your investment advisor.