136 THE WARREN BUFFETT WAY
to value (15 percent growth in owner earnings), a 37 percent discount
(12 percent growth), or a 25 percent discount (10 percent growth).
The Washington Post Company
Even the most conservative calculation of value indicates that Buffett
bought the Washington Post Company for at least half of its intrinsic
value. He maintains that he bought the company at less than one-
quarter of its value. Either way, Buffett satisf ied Ben Graham’s premise
that buying at a discount creates a margin of safety.
The Pampered Chef
It is reported that Buffett bought a majority stake in the Pampered Chef
for somewhere between $800,000 and $900,000. With pretax margins
of 20 to 25 percent, this means that the Pampered Chef was bought at a
multiple of 4.3 times to 5 times pretax income and 6.5 times to 7.5
times net income, assuming full taxable earnings.
With revenue growth of 25 percent or above and net income that
converts into cash at anywhere from a high fraction of earnings to a
multiple of earnings, and with a very high return on capital, there is no
doubt that the Pampered Chef was purchased at a signif icant discount.
(Text continues on page 138.)
Figure 8.2 Common stock price of the Gillette Company compared to the S&P 500
Index (indexed to $100 at start date).