A Few Reasons Why I Am Shorting Barnes and Noble $BKS

Wednesday, June 23, 2010 at 3:20PM
Michael Bigger

 Written by Michael Bigger. Follow me on Twitter.

 

 Here they are:

1. Barnes and Noble (BKS) does not have the balance sheet to win a price war with Amazon.com.
2. BKS is fighting the Kindle and the iPad. Put yourself in BKS's shoes. Is that a war you can win? Imagine how much more intense this battle becomes if Google enters the market.
3. The Kindle has been social-media enabled. It seems like the big innovations on the e-reader front are not coming from BKS. I don't expect that to change.
4. My post Barnes and Noble's Pathetic Online Results was prescient. My short position has worked, and it should continue to do so.
5. With books going digital, BKS stock price should follow the same trajectory others followed in such predicaments: for example, Polaroid, Eastman Kodak, Blockbuster, etc. You get the idea.
6. If BKS decides to unwind stores, it would do so in a difficult real estate market.
7. Many e-books are free. Digital publishing will put pressure on e-books prices and more pressure on printed books. This trend is just starting. The margins won't sustain the old model.
8. The business model is broken.

Caveat: BKS will not go away so easily. It has a minimal amount of debt and it could very well find more capital to fight this battle.  I keep my short positions small since I never know what is lurking on the blind side.

Do you know of anything BKS could do to change my mind?

 

Article originally appeared on (http://biggercapital.squarespace.com/).