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I work as an analyst for a boutique firm based in TN. My investment ideas are research driven, and based on seeking above average returns by employing multiple strategies. I prefer longterm investments, as opposed to short term trading.
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  • Groupon: Is A Deal Really A Deal?

    A friend of mine recently purchased a $40 for $20 restaurant deal on Groupon. Great, I thought. Half price is usually considered a deal. After eating at the restaurant, however, my friend and I realized a significant flaw in our reasoning.

    First, we had to pay tax, which is 10% in our area. Second, we had to tip the waiter; 20% is standard where we live. Third, the Groupon did not actually equal $40 worth of food, because we only ate $36 and nothing on the menu was within the remaining $4 range.

    We broke down the cost as follows.

    Cash paid for Groupon: $20

    Tip on $36: $3.6

    Tip to Waiter: $7

    Total Cash Out Flow: $30.6

    Total Benefit from Meal: $36

    So essentially we paid $30.6 for $36, or around a 15% discount. Not a very good deal in my opinion, especially when it's marketed as a half priced item.

    I see a lot of offerings on Groupon for service related deals, restaurants, salons, etc, where tip is often a large percent of the bill.

    If consumers wise up and realize they are not getting much of a bargain, will they stray from their local hair dresser or drive out of their way to experience another restaurant? Will the main people who use the Groupon become the locals who frequent the particular place regardless of any deal? If so this would negate offering a Groupon to attract new customers. What's in store for Groupon if this happens?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GRPN
    Jul 12 6:58 PM | Link | 3 Comments
  • Vishay Precision Group: A Look at Valuation

    Vishay Precision Group (VPG) is a recent spin-off of parent company Vishay Intertechnology (VSH). Upon an initial inspection VPG looked somewhat overpriced; however since its most recent quarter, the company is beginning to look more investment worthy. Comparing the April 3rd pro forma with this quarter’s numbers, the company has been able to increase revenues by 9.8% while decreasing cost of goods sold from 64.6% of net revenues to 62.24%; as a result gross profit moved up by 17%, and gross margins increased from 35.4% to 37.8%. Additionally, keeping SG&A in check has allowed VPG to boost income from operations by 89%. Moving further down the income statement, net earnings attributable to the parent, which deducts non controlling interest, rocketed two hundred seventy eight percent.  

    In terms of liquidity, the company seems well positioned. Total assets less total liabilities, divided by the diluted shares outstanding leaves roughly $10.70 per share. As a side note, from here on any per share figure has been divided by the diluted share count of 13,700,000. Working capital is setting at $8.10 per share, and a worst case scenario of current assets less all liabilities leaves shareholders with $5.7 per share. Any figures that include total liabilities account for the additional $10 million of 2102 notes VPG will inherit from its parent.

    Although VPG has had impressive growth recently, an important question is whether this growth can continue. According to CEO Ziv Shoshani, VPG experienced better business conditions worldwide, although much of the strong recovery in revenue occurred primarily in the U.S. Orders for the foil technology segment has stabilized above pre-crisis levels, but the weighing modules and control systems segment is still 30% below pre-crisis levels, and thus still quite depressed. Employee count is up by 66 heads to 2162, resulting from manufacturing expansions and a few additional general and administrative personnel related to the spinoff. Additionally, 2010 capital expenditures are expected to be 10 million, 20% of which is related to the company’s expansion in India. In terms of growth, it looks as if the company has room to both stabilize and move forward in the industry. During the conference call, Mr. Shoshani commented on two areas expected for long term growth; the first is a weighing application placed in vans to prevent overloading, which will reduce accident liability, maintenance costs, and overloading fines; the second is a way to optimize paper mill systems by installing on existing machines a device that will measure and optimize web tension for efficiency improvements. Thus, VPG looks to be doing a creative job of analyzing and addressing issues that should help other companies operate more efficiently, which should in turn help position VPG for future success.

    As of this point, considering net income remains at the current level (no further growth or any decline), VPG is looking at annual income of $1.18, which is (4035/13700)*4. Using this logic, free cash flow, defined as net income + depreciation & amortization – capital expenditures, looks around $2.3. With a book value of $10.7, the company is trading at less than 2X book, and considering net income remains at the current level VPG is trading at a modest 12.6 P/E. Combining book value with free cash flow gives the company a value of $13.04; at the current price of $14.9 this suggests VPG is trading at a modest 14% premium to its current value, not taking into account any future growth.

    Finally, directors and management seem quite competent, and seem to have interests aligned with the success of VPG. Both the CEO and CFO have solid backgrounds and each has been with the company for over ten years. Dr. Felix Zandman, who is the founder of VPG, will retain 99.4% of the class B shares, representing 45% of company’s voting control.   

    Disclosure: Long VPG
    Aug 09 1:39 PM | Link | Comment!
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