The value analysis of GRG shows that GRG is a conservatively managed company where nearly all the profit is available for owners of the common stock. GRG has virtually no debt, which means most of the profit goes to owners of the common stock.
GRG has strategically decided to lease its store locations rather than buy them. Most other listed retailers eventually end up owning significant amounts of real estate. The strategy to lease outlets is what allows GRG to have vey low debt levels. There is some inherent leverage in leasing property as there is a multi-year commitment from the tenant. GRG is the tenant.
GRG makes specific mention of the lease commitments in their annual report and specifically Note 2 of the 2016 Annual Report. Other than general trading conditions the lease commitments are the only significant risk to a value investor. Therefore, all potential value investors in GRG common stock should make sure that management are managing lease obligations. Specifically, it means ensuring that the company has enough cash coming in from its operating business to meet lease obligations. The operating cash flow creates the margin of safety for owners of the common stock.
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