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 $10.
Makes sense?
Written by Michael Bigger. Follow me on Twitter and StockTwits.
P.S. American Apparel is still a highly distressed situation and it is not suitable for the majority of investors. The purpose of the post is to write down how I think about this and share it with you.
Don't go. Keep powder dry until it is so good, you want to allocate big time.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
In this month edition, Forbes has a great article about Renzo Rosso and his company Diesel. You can read more about it here.
When Rosso started Diesel did he think for one second about selling the company after a double or a triple? I doubt he did.
There are things you buy to flip and other things you buy to ride for a very very long time.
I think the trick here is to focus on the uniqueness of the brand and figure out if the brand has legs. If it does, why not go for the ride?
Do you ever consider going for a very long ride? If not, why not?
Written by Michael Bigger. Follow me on Twitter and StockTwits.
It is pretty obvious to me and others that there is a ton of value in Sears Holdings ($SHLD). The issue with an investment in SHLD is that Eddie Lampert is asking you to jump in the pool with him and hold your breath for potentially a period of time of 10 to 20 years before he catalyzes the situation and allows you to come back to the surface. It could happen more quickly of course. Why would he show you his cards?
Most investors are not ready to wait that long...and Eddie is slowly stealing the company away from investors a la Michael Dell but in a more subtle way. He knows you can't hold you breath.
If you make the determination you can hold your breath for that long, by all mean, jump in the pool.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
A lot has been said about J C Penney ($JCP) stock prices in the past few days. In a world of near perfect and free information consummer brands have no choices but being bold. Else, you die.
I find $JCP fascinating because of its boldness. It might have a chance and I am monitoring.
The non-bold consummer brands are .......
Written by Michael Bigger. Follow me on Twitter and StockTwits.
No,,,I don't care about the stock price ($APP). I don't care about what it does in the next five minutes or ten or a week or a few months. I don't care one bit.
If you care about the price, I am the wrong person to ask.
I care about the business. The yardstick is the business. I care how about they are eliminating the backroom in most store and increasing selling space by about thirty percent. I care about the new distribution center and how that will improve operation and margin. I care about some stores comping at ninety percent in Asia. I care about EBITDA margin reaching up to twenty percent.
I care about the business. Other than that I don't care.
If you want to talk about the essence of the business, I am willing to spend the whole day talking about it.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
Fortune published a piece about Amancio Ortega back in January of 2013. Ortega is the Founder of Zara and Inditex. Anyone interested in investing in apparel brands must read this article. You can access the piece right here. Enjoy!
Written by Michael Bigger. Follow me on Twitter and StockTwits.
It was not obvious to:
It is never easy because the mind is focused on the vivid -The Fallacy of Vividness - and not on what is not changing. What is not changing with these companies is that the customers keep coming back.
Written by Michael Bigger. Follow me on Twitter and StockTwits.
Saturday, April 6, 2013 at 1:10PM