Four investment gurus are buying into one fallen angel in the stock market, Diamond Foods (DMND). The stock had advanced significantly from $14 in 2006 to $90 in September 2011, delivering investors a juicy return of 600% in just five years.
The party, however, couldn't last any longer. In November 2011, the company delayed the acquisition of the Pringles snack from Procter & Gamble (PG) "following the receipt by the Chairman of the Audit Committee of Diamond's Board of Directors of an external communication regarding Diamond's accounting for certain crop payments to walnut growers."
In Febuary 2012, the Audit Committee concluded that the company's financial statements for the two years of 2010 and 2011 needed to be restated. In addition, the board of directors was to appoint a new CEO and CFO. Right after that, the stock price experienced a free fall of 75%, with the largest item in the balance sheet being Goodwill And Intangibles, of $950 million. Enough to scare investors off.
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However, Greenlight Capital's David Einhorn commented in his first quarter 2012 letter: "Imagine our surprise when DMND announced that its own audit committee had actually investigated, found the wrongdoing, restated earnings and dismissed the management. This sort of self-policing happens too infrequently and we think it deserves to be noticed and applauded."
That apart, four investment gurus have been buying into the stock including Bill Gates, Mario Gabelli, Howard Marks and Ken Fisher. Especially Howard Marks, whose firm OakTree Capital Management said it would invest $225 million in the company, so that it can amend its credit agreement with lenders and meet financial obligations. It would make Diamond Foods' financial health stronger.
Currently, Diamond Foods is trading at $20.16 per share, with $444.7 million in market capitalization. The market is valuing the company at 9.1x P/E, 6.8x P/CF and one time its book value.