TableTopic/WriteUp: Gildan Activewear/None

Introduction: every week, I will commit to finding one potentially actionable idea which will be briefly mentioned in my Table Topic posts. The posts will be published every Sunday night at 6 PM EST. I’m not aiming for perfection but simply consistency in a research process that I seek to further develop. The goal here is to pick up and discard undesirable ideas as fast as I can, all while attempting to land on one that may pay dividend. In terms of idea sourcing, I’m agnostic to the source. I find that my job is to identify points of contention and research the idea such as to hold an opinion that sways me to either side of the debate. Table Topic ideas are meant to be very high-level and shallow at first; they’re merely sticky-notes of initial thoughts I have as I shuffle through pages of writings I find interesting. The subsequent write-ups, however, will be a bit more detailed.

Table Topic: Gildan Activewear (idea source: Value Investing Club)

Eye-catcher: ~10x NTM EV/EBIT for a company that has grown top-line 5% CAGR over past decade. Decrease in multiple is mostly explained by increased earnings yield - historical operating margins have been 15%, now 20% on a LTM basis.

High-level: Gildan is a Canadian apparel manufacturer posting higher margins now than has been historically the case. The durability of this increased earnings yield seems to be the point of contention amongst market participants. In deciding which side of the debate I lean on, I’ll attempt to evaluate the extent to which 20% is the new normal for the company. Amongst the series of questions I’ll seek to answer are:

- the source of higher margins: price? quantity (economies of scale)? cost structure?

- economic profile of end markets: is it likely that revenue growth over the next five to ten years adhere to historical norms?

- path to shareholder success: to the extent that entering shareholders will be rewarded, would it be via multiple expansion? capital allocation policies that favor buybacks? dividends?

At the end of each Table Topic post will be a write-up of the previous week’s idea. In it, I’ll provide an overview of the company and reasons for my willingness or reluctance to purchase the security, a recommendation of sort.

Regards,

SYL.