STGW, Stagwell Inc.

Will it survive?

• Can it pay its interest? 1.6×
  Thin
  Operating income $159M ÷ interest expense $96M
  What this means

  Operating profit covers interest, but with little room. A bad year, a refinancing at higher rates, or a revenue wobble closes the gap fast.

• How heavy is the debt, net of cash? $1.2B · 7.7× operating profit
  Heavy net debt
  Cash $105M − debt $1.3B
  What this means

  Netting $105M of cash and short-term investments against $1.3B of debt leaves $1.2B owed, about 7.7× a year's operating profit (8.3× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? -16d
  Negative, funded by others
  DSO 92 + DIO 0 − DPO 108 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”), the company grows on other people's money. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 4%
  Below average through the cycle
  5-yr median, range 2%–21%; 4% latest = NOPAT $80M ÷ invested capital $2.0B
  Industry peers: median 13%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 5 years (it ran 4% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 9%
  Solid, recently turned positive
  latest $247M = operating cash $291M − maintenance capex $44M; positive each of the last 3 years, after an earlier loss stretch (10-yr median 4%)
  Industry peers: median 9%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 9% of revenue this year, a 4% median across 10 years. Treating stock comp as the real expense it is (less $54M of SBC) leaves $193M.

• Are earnings backed by cash? 10.00×
  Cash-backed
  Cash from ops $291M ÷ net income $29M

  In the filing’s words The filing discloses a material weakness in its financial controls — the reported numbers here, and the record built on them, are only as reliable as the controls that produced them.

  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 54%
  Returns about half
  Dividends + buybacks $134M ÷ Owner Earnings $247M
  What this means

  Of $247M Owner Earnings, $134M (54%) went back to shareholders, $56K dividends, $134M buybacks. Net of $54M stock comp, the real buyback was about $80M. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 0.26×
  Harvesting
  Capex $44M ÷ depreciation $171M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Graham’s defensive tests · 1 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Pass
  Revenue ≥ $2B · $2.9B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Miss
  Current ratio ≥ 2× · 0.79×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Miss
  Debt ≤ working capital · $1.3B vs ($318M) WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (10-yr record) · 3 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 4 of 10 yrs
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Miss
  Earnings +33% over the record · −52%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $0.04/share (latest year $0.12), the averaged base the calculator's gate runs on, and book value is $3.06/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 7 of 10
  What this means

  Lost money in 3 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 2 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 4% → 5% (3-yr avg ends)
  What this means

  Through the cycle the operating margin held roughly steady — about 4% early, 5% lately, median 5%.

• Reinvestment, incremental ROIC 1%
  What this means

  Reinvested capital came back at only a modest incremental return — near the cost of capital, where extra growth adds little per dollar. The record shows whether it is a soft stretch or a thinning moat.

• Worst year 2018 · 0.1% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Dividend record paid
  What this means

  Paid a dividend in 4 of the years on record.