Were you investment depressed when Sterling Partners executed on this deal in 2009? They invested in Select Comfort ($SCSS) at below a dollar. Are you investment dancing now? If so, have a ton of fun.
"As long as the music is playing, you've got to get up and dance. We're still dancing."
Chuck Prince, July 2007
Written by Michael Bigger. Follow me on Twitter and StockTwits.
A few days ago we wrote The Boulevard of Broken Dreams, a blog post about Plug Power ($PLUG) in which we said:
We look at $PLUG as an options on the modern fuel cell technology. Buying $PLUG buys you convexity on this market but the underlying payoff has also some convexity to the upside because of the impact of reflexivity (Soros) between the stock price and the business.
This situation has tremendous potential energy to the upside. Some will be disappointed that we are not pulling out a 180 pages Ackman presentation about this situation. Doing this would be intellectually dishonest. When dealing with the adjacent possible....We just don't know.
But we know this about this situation. We know that in order to rocket launch and transform this potential energy into kinetic energy, we need an ignition, a catalyst. If Plug Power ignites, this situation will reverse the downward trend and start trending the other way in a massive way.
We believe the catalyst resides in having one of $PLUG top customers extend the GenDrive solution from location one to location two. Here is what Plug CEO said during the latest earnings conference call:
We are also quite excited to announce that the Wal-Mart Washington Courthouse Ohio Distribution Center completed deployment of over 250 GenDrive units powering their forklift truck fleet and have removed their battery room. 3 or 4 of our largest customers discussing multiple distribution centers, up to 5 in some case, where they're looking to migrate to fuel cells, where they're working through their expansion plans internally. (Source www.seekingalpha.com)
We find it interesting that Wal-Mart($WMT) has eliminated its battery room. If this was an experiment, it would have most likely kept its battery room at this facility. Wal-Mart has 158 distribution centers in the USA. You do the math ;-). If $WMT decides to implement the GenDrive solution to a second distribution center, Plug Power will have made a reality of the adjacent possible.
Makes sense right? But actually, WMT has implemented the technology in 3 distribution centers already. Check out this press release issued by Ballard Power System ($BLDP). Could it be that the market is not paying attention? What is the value of the Wal-Mart potential future business?
The pent-up customer demand is visible to the team at Plug Power. (PLUG CEO comments, transript www.seekingalpha.com)
No kidding!
But this is not only about $WMT, it also about Fedex ($FDX), Procter & Gamble ($PG), Sysco ($SYY), Coca-Cola ($KO), Mercedes Benz.....
Let us know what you think.
Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family are large holders of $PLUG stock.
Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
In finance, the image located below represents the Boulevard of Broken Dreams: Dreams about a massive technological adjacent possible with unlimited potential opportunities that never becomes reality. This is the sad story of Plug Power ($PLUG) in one image.
Plug Power is an architect of modern fuel cell technology. Plug Power is revolutionizing the industry with cost-effective power solutions that increase productivity, lower operating costs and reduce carbon footprints. Long-standing relationships with industry leaders forged the path for Plug Power’s key accounts, including Walmart, Sysco, P&G and Mercedes. With more than 3,000 GenDrive units deployed to material handling customers, accumulating over 8.5 million hours of runtime, Plug Power manufactures tomorrow’s incumbent power solutions today. (Source: Plug Power website)
The company has had its fair share of problems over a span of fifteen years. The situation has been going to zero fast. Investors have been attracted to this situation based on the promise of its technology. Most have left poorer the Boulevard of Broken Dreams.
We look at $PLUG as an options on the modern fuel cell technology. Buying $PLUG buys you convexity on this market but the underlying payoff has also some convexity to the upside because of the impact of reflexivity (Soros) between the stock price and the business.
This situation has tremendous potential energy to the upside. Some will be disappointed that we are not pulling out a 180 pages Ackman presentation about this situation. Doing this would be intellectually dishonest. When dealing with the adjacent possible....We just don't know.
Management has stated they they will be EBITDA breakeven at around mid 2014 on a quarterly revenue run rate of $13.50 mm. They are doing about half of this at the current moment. The company can accomodate $200mm of business with its current facilities.
The downside is zero with a walk of shame along the Boulevard of Broken Dreams.
A few facts are favoring a positive outcome:
The pent-up customer demand is visible to the team at Plug Power. That is why during the past 5 months, the toughest in the company's history, we have not lost the design or sales employee, except for extraordinary personal reasons, because they recognize how close we are to success. I perceive this also, and in the near future, path to success will be visible to shareholders, new investors and especially our competition. I know many will be surprised, but not us. We're building the business every day.
The next 120 days are critical to our sales effort. I expect order flow of over $20 million in that time frame, but also, we will be seeing business steps by some customers to position large orders before year's end. (Source: www.seekingalpha.com)
We speculate that these large orders before year's end will be the catalyst moving the stock higher.
We have a long speculative position in $PLUG. We will be increasing this position if $PLUG's results confirm the company's performance benchmark.
If you want to learn more about this situation you should read the earnings conference call transcript. And don't forget to let us know what you think.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
P.S. Plug Power is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal.
I admire American Apparel's determination. Talk about doing the impossible, doing the stuff that can't be done. They are crazy and I love it! and they will get it done...
Written by Michael Bigger. Follow me on Twitter and StockTwits.
Michael and I are analyzing a special situation with Crumbs Bake Shop ($CRMB). Here is a chart of the stock, where you can see that it fell from a high of over $13 in 2011 to it’s current $1.40. Most recently the fall from over $3 to below $2 due to disappointing earnings in the fourth quarter of 2012 and a pending deal with regards to the convertible bond:
$CRMB grew its store count rapidly, however, when growth failed to achieve expectations, the stock price began it’s decline. Most recently, 4Q2012 earnings came in below expectations. To finance future expansion and the change in strategy from street-level stores to mall kiosks, the company announced on April 11, 2013, a private arrangement with Canadian investor Michael Serruya. Under the terms, Serruya will purchase $10mm in senior unsecured convertible notes with a 5 year term and a $2.50 conversion price, with interest rates at 7% (cash) or 10% (stock). Serruya will also be on the board of Crumbs.
Michael Serruya was the same “rescue investor” who called attention to our recent investment in American Apparel ($APP). The name and the strike price on the convert tell us it is worth investigating this situation.
Here is what we know:
Serruya will have converts covering 4mm shares (40% of the shares outstanding).
Sales increased on a Y/Y basis (2012/2011), although 4Q sales declined (partially due to Hurricane Sandy). Gross margins decreased as well, on a Y/Y and Q/Q basis.
Operating Loss also widened on a Y/Y basis.
The company has no long-term debt.
To turn around sales, the company is focused on it’s change in strategy to mall-based kiosks and away from street-level retail stores.
The cupcake business is very competitive, however sweets are a constant in the American diet.
We currently have a very small position. We will be monitoring the situation closely to see if it makes sense as a larger investment.
Written by Jennifer Galperin. Follow me on Twitter and StockTwits
I started reading The most important thing illuminated and I came across this statement:
Are you telling me that investors started investing from a value perspective after the Publication of Security Analysis?
I am totally confused. I would think the pursuit of value in commercial activities and investing activities is as old as humanity.
Very confused Michael Bigger. Follow me on Twitter and StockTwits.
American Apparel had sales of $616 mm in 2012. The company should grow sales by about 10% in 2013. Starting in 2014 the company should open about 20 stores per year according to the 2012 4th quarter earnings release from 252 as of year end 2012. This should help the company grow revenues by closer to 15 percent annually.
I have prepared a chart showing what the EBITDA picture could look like in 5 years from now using different scenarios. There is strong EBITDA margin expansion as the production throughput converges towards $800 mm of sales annually. And now for the numbers:
If you average the data in the matrix located at the bottom of the table you get $.73 of pre tax earnings. Using a 14 * price to earnings ratio that gets you a stock price of $10. This is a very rough calculation and as you can see the range of outcome is very wide. However, I believe that at $2.30, the stock is still a bargain even if it reaches only a fraction of this level.
In addition, Dov Charney, the company's CEO, has an anti-dilution provision that works the following way: If $APP stock price reaches performance goals of $3.25 by 2014, $4.25 by 2015, and $5.25 by 2016, the CEO receives a total of 39.7mm additional shares. The likelihood that the stock goes out and takes out these strike is high, don't you think?
Oscar Schafer made the point in Barron's a few weeks ago that go private transactions for distressed apparel companies are done at between 10 and 15 times EBITDA. You can read more about Schafer's thesis here: More Insights about distressed Apparel Companies. Using these factors on the data included in EBITDA per share for 2017 matrix, we get a stock price of in between $4.90 and $22.90.
I believe reasonable boundary conditions on APP within five years is $5.00 to $10.
Makes sense?
Written by Michael Bigger. Follow me on Twitter and StockTwits.
P.S. American Apparel is still a highly distressed situation and it is not suitable for the majority of investors. The purpose of the post is to write down how I think about this and share it with you.
Don't go. Keep powder dry until it is so good, you want to allocate big time.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
In this month edition, Forbes has a great article about Renzo Rosso and his company Diesel. You can read more about it here.
When Rosso started Diesel did he think for one second about selling the company after a double or a triple? I doubt he did.
There are things you buy to flip and other things you buy to ride for a very very long time.
I think the trick here is to focus on the uniqueness of the brand and figure out if the brand has legs. If it does, why not go for the ride?
Do you ever consider going for a very long ride? If not, why not?
Written by Michael Bigger. Follow me on Twitter and StockTwits.
Monday, May 20, 2013 at 9:54AM