Investment Thesis
Winmark demonstrates exceptional operational performance with 59.3% operating margins and 56.9% free cash flow margin, generating strong cash to service operations. However, negative stockholders' equity of -$46.2M and debt exceeding total assets represent severe structural financial distress that cannot be overlooked despite adequate interest coverage and liquidity metrics.
Strengths
- Exceptional profitability: 59.3% operating margin and 44.4% net margin indicate highly efficient business model
- Outstanding cash generation: $11.9M free cash flow on $20.8M revenue (56.9% FCF margin) with minimal capex
- Strong liquidity and coverage: 2.74x current ratio, 2.70x quick ratio, 16.8x interest coverage ratio
- Consistent earnings growth: 4.3% net income growth and 3.8% EPS growth demonstrate stable performance
Risks
- CRITICAL: Negative stockholders' equity of -$46.2M indicates total liabilities exceed total assets, creating structural insolvency risk
- Excessive leverage: $47.7M long-term debt dwarfs $20.8M annual revenue (2.3x debt-to-revenue ratio) and exceeds total assets
- Anemic growth: 5.9% revenue growth and 3.8% EPS growth rates are insufficient to meaningfully reduce leverage over time
- Limited scale and vulnerability: $20.8M revenue base leaves minimal buffer for operational deterioration
Key Metrics to Watch
- Debt paydown trajectory and path to positive stockholders' equity recovery
- Free cash flow sustainability and allocation to debt reduction versus distributions
- Revenue and net income growth acceleration above current 4-6% range
Financial Metrics
Revenue
20.8M
Net Income
9.3M
EPS (Diluted)
$2.50
Free Cash Flow
11.9M
Total Assets
35.6M
Cash
19.8M
Profitability Ratios
Gross Margin
N/A
Operating Margin
59.3%
Net Margin
44.4%
ROE
N/A
ROA
26.0%
FCF Margin
56.9%
Balance Sheet & Liquidity
Current Ratio
2.74x
Quick Ratio
2.70x
Debt/Equity
N/A
Debt/Assets
0.0%
Interest Coverage
16.76x
Long-term Debt
47.7M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-04-19T05:24:29.018297 |
Data as of: 2026-03-28 |
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