This company, primarily a provider and franchiser of income tax return preparation, DIY tax solutions, and other service and products related to income tax preparation, has been grouped into income tax preparation sector in professional service industry.
It seems that demand for income tax return preparation products and service of companies in this sector, according to the typical company data, has been weak and declining as indicated by the continuingly decreased comparable returns (per office) prepared by those companies or their franchise offices. However, it seems that returns started going up since 2017 by the data of some of companies that the increase in returns prepared seems to be faster than the increase in office expansion of those companies.
It seems companies in this sector has faced increasing expenses including occupancy and labor costs, which, working together with slowing growth in demand, put huge pressure on fees rate and thus profitability of companies, especially their franchised offices.
While companies have been trying to save costs by spending less or acquiring and opening more offices, their margins seem to be decreasing. The current typical gross margin is about 49% in 2017 with a higher SG&A as percentage of sales of about 30% and lower operating margin of about 19%.
The typical average stock Price/cash flow ratio is: 13. (interest/EBI ratio of 17%).
It seems that the demand for income tax related products/service of this company has been weak in the past several years as indicated by slow growth in royalties and in new franchised offices. Increase in sales has mainly come from expansion of company-own offices. Number of returns franchised offices has been down.
The first three months of fiscal 2018 compared with the same period of 2017
Revenue increased 15%.
Royalties increased 16%.
Franchise fees decreased 70% as a result of less new franchised offices.
The fiscal 2017 compared with 2016
Revenue was flat.
Revenue from company-own offices increased due to increased number of offices.
Royalties decreased 7% as a result of decreased returns prepared by franchised offices.
Franchise fees decreased 47% as a result of less new franchised offices.
The fiscal 2016 compared with 2015
Revenue increased 7%.
Revenue from company-own offices increased due to increased number of offices.
Royalties was flat.
Franchise fees decreased 19% as a result of less new franchised offices.
Its gross margin (including rent) has gone up from 51% to 54% since 2014. Due to the increased SG&A as percentage of sales (around 40% in 2017) as a result of expansion of new offices, its operating margin went down to about 14% in 2017.
Stock performance
This stock currently has a stock price/cash flow ratio of 13. We think that its stock is being relatively overvalued considering its smaller scale and the fact that it heavily depends on franchise revenue.
