Snap-On Incorporated (NYSE: SNA) seems out-of-place among today’s trending stocks.
Snap-on (SNA) makes high-quality tools and sells them through franchises. If you live in the United States, you have probably seen the white Snap-on van at your local garage or machine shop. If you work at a garage or an auto-body shop, you probably use Snap-on tools.
Hence, Snap-on seems a world apart from the biotechnology and cloud computing stocks driving the present US stock bubble. Yet, Snap-on is bubbling at the same rate of some today’s hottest stocks.
Bubbles and Anti-Bubbles
Mr. Market paid $121.67 for Snap-on (NYSE: SNA) on 5 May 2020. A year later, on 7 May 2021, Mr. Market paid $251.56 for SNA.
Thus, Snap-on’s share price grew by $129.84 in a year. Impressively, Snap-on’s share price grew by over 50% during the pandemic year.
I consider Snap-on’s growth an anti-bubble. To explain, contrarian investors who distrust the market seek companies that differ from what Mr. Market is buying.
Hence, people buy an unsexy maker of often low-tech tools; Snap-on. Notably, Snap-on’s product include wrenches, tire changers, wheel aligners, brake testers, airframe tools, chisels, lifts, power-tools, and wheel-alignment systems.
Snap-on is a Technology Company
However, Snap-on is a technology company that manufacturers many high-tech devices. The auto-HC Electronic Vehicle Health Check solution, for example. Another example is Cartec’s testing devices for vehicles and NEXIQ Technologies’ diagnostic products. Then there’s Dealer-FX which manufactures software for dealerships.
Thus, you can view Snap-on as an effort to hedge the current stock bubble. Snap-on buyers try to play both sides of the bubble by investing in a traditional value investment that markets enormous amounts of tech.
Many investors also think Snap-on is an auto-industry investment that could be resistant to changing technology. The thinking is that technicians will need tools to service electric cars, robots, and self-driving vehicles. Snap-on can make money by selling those tools.
How Snap-on makes money
Snap-On Incorporated (NYSE: SNA) manufactures tools and equipment, then sells those products exclusively through its franchises.
In detail, Snap-on owns around 24 tool and equipment brands. To provide those tools and devices, Snap-on operates around 32 factories in 14 countries.
They sell Snap-on tools through franchises, the Snap-on franchises are unique because the franchisees use vans to take the tools straight to customers. Franchise Gator estimates Snap-on has over 4,000 franchisees.
The Snap-on franchises are expensive. Snap-on itself admits the cost of a franchise is $169,223 to $382,235. Snap-on makes money by selling the tools through the franchise, licensing the Snap-on brand, and financing the franchisee through credit.
How Much Money does Snap-on make?
Unfortunately, Snap-on (SNA) will not reveal how much money franchisees make. Fortunately, we know how much money Snap-on makes because it is a publicly traded company.
For instance, Snap-on reported a $579 million quarterly gross profit and a quarterly operating income of $266.20 million on 31 March 2021.
Additionally, Snap-on reported quarterly operating cash flow of $319.3 million on 31 March 2021. Impressively, Snap-on reported a quarterly ending cash flow of $904.60 million on on 31 March 2021. Similarly, Snap-on had $905 million in cash and short-term investments on 31 March 2021.
Thus, Snap-on makes money, and it is a growing company. In particular, Snap-on’s quarterly revenues grew from $938 million on 31 March 2020 to $1.113 billion on 31 March 2021.
The quarterly gross profit grew from $484 million on 31 March 2020, for example. The quarterly operating income grew from $195.80 million on 31 March 2020.
Similarly, the quarterly operating cash flow grew from $213.40 million on 31 March 2020. Impressively, the quarterly ending cash flow grew from $185.30 million on 31 March 2020.
Consequently, Snap-on has more cash. Snap-on’s cash and short-term investments grew from $186 million on 31 March 2020 to $905 million a year later. Plus, Snap-on’s total assets grew from $5.564 billion on 31 March 2020 to $6.674 billion on 31 March 2021.
On the other hand, Snap-on’s total debt grew from $1.173 billion on 31 March 2020 to $1.504 billion on 31 March 2021. Yet Snap-on pays its debts. Snap-on reported a quarterly financing cash flow of -$131 million on 31 March 2021.
Mr. Market overprices Snap-on
I consider Snap-on (SNA) a good moneymaking company with some strong value characteristics that Mr. Market overprices. I see nothing in Snap-on’s financial numbers that justifies the $251.56 price.
Hence, Snap-on is bubbling and needs to be avoided. However, I think Snap-on is a good dividend stock.
Snap-on will pay a $1.23 quarterly dividend on 20 May 2021. That quarterly dividend grew from $1.08 on 19 August 2020.
Overall, Snap-on shares provided a $4.92 annualized dividend and a 2.06% dividend yield on 5 May 2021. Thus, I view Snap-on as a terrific dividend stock with a high margin of safety.
I think Snap-on is an excellent company investors need to watch. At present, I think Snap-on is a great stock, Mr. Market overprices. I advise investors to avoid Snap-on until the bubble ends.