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David Sims is the managing member of RidgeHaven Capital LLC. We prefer distressed equities and value investing. The firm was established to manage wealth with an eye on fundamental value, but also an understanding of technical trends and market behavior. David is a Certified Public Accountant... More
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  • Did Dave And Busters Get A Boost From Lower Oil Prices?

    Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) stock is up more than 10% in premarket after reporting earnings that beat expectations. The company, with more than 10,000 employees, operates a chain of restaurants that caters to the child in every adult. When adults spend money here, it is the definition of discretionary spending.

    The company reported,

    "earnings per share had soared 150% to 40 cents on a 20% hike in revenue to $217.3 million. Consensus was for EPS of 23 cents on $204.3 million in revenue. Comparable-store sales rose 11%, accelerating from Q1's 9.9% gain and a 5.7% increase in the year-earlier quarter." - IBD

    Additionally, the company raised their earnings guidance for future quarters.

    This morning, I heard the local DJ marveling at the 98 cent per gallon gasoline price at a local station. I can't help but think there is a link between blowout earnings at Dave & Busters and less money spent for filling up the gas tank.

    To see relative gas prices, one might look at the United States Gasoline (NYSEARCA:UGA) or United States Oil (NYSEARCA:USO) ETF, which have fallen from recent highs on record levels of U.S. oil production.

    UGA Chart

    UGA data by YCharts

    From my own research, I have seen that consumers are actually quite strong. Debt service payments, as a percentage of disposable income, are at lows not seen in several decades. In other words, consumer balance sheets are strong.

    (click to enlarge)

    Additionally, per capita debt levels have been dropping. I wrote about this recently in an article on financial stocks. Basically, consumers have wads of cash burning a hole in their pockets.

    The forward P/E ratio on Dave & Busters is about 28 times earnings. While the recent earnings report is positive, the stock appears to be fully valued at this level.

    Tags: PLAY, USO, UGA
    Sep 09 9:07 AM | Link | Comment!
  • Wishing I Had Stayed Short Netflix

    Back in July, I wrote a piece on Tumblr stating that Netflix (NASDAQ:NFLX) was ripe for a correction. I compared the Netflix stock price appreciation to revenue and subscriber growth. The comparison obviously showed an over-valued stock.

    I also wrote,

    "Traditional measures of valuation like price to earnings ratios are an easy target for criticism. The current forward P/E ratio of more than 260 is without precedent. This valuation shows an earnings yield of 0.38%. As we know, easy money is about to be removed from the market, which should cut into yields on all securities. Netflix is ripe for a correction."

    Since I wrote this, Netflix stock dropped from about $115 to $99 today.

    NFLX Chart

    NFLX data by YCharts

    At the time, I shorted Netflix in several accounts for myself and clients. However, each time the stock dropped marginally, I closed my shorts, booking tiny gains.

    Now, I am reviewing the forward P/E ratio for the company again and seeing that it has actually gotten worse as the stock has been selling off. At a forward P/E of 332, you have to wonder why anyone would buy the shares.

    Overall, I am bullish on several sectors of the market, including homebuilding and financials. However, stocks like Netflix might need to crater before the market moves forward. (Considering a new short position.)

    Tags: NFLX
    Sep 04 11:00 AM | Link | Comment!
  • Volatile Post Earnings Ride For Baidu Shareholders

    With the recent up and down swings in Chinese markets, I was especially interested in the post-earnings trading of stocks like Baidu (NASDAQ:BIDU). The headline from Bloomberg was "Baidu Sales Outlook Misses Estimates on Weaker Chinese Economy."

    Baidu's sales forecast was the disappointing data point for investors, as the stock fell more than 12% after-hours. This is after the company posted 38.3% annualized revenue growth and an earnings per share beat of 10 cents.

    I recently put a sell rating on Netflix (NASDAQ:NFLX) and I found it interesting that Baidu is expanding into streaming video. This helps to reinforce my belief that Netflix has few competitive barriers, especially in unregulated foreign markets.

    Let's be real, the problem with these stocks is not the underlying business. Baidu may have lowered sales forecasts, but the current growth rate of 38.3% is spectacular. The problem is the valuation of the stock. At 33 times trailing earnings, they must execute on forecasts with perfect precision.

    That being said, Baidu may be a better buy than others in this sector. This is just a quick glance at volatility and the impact of lowering guidance.

    Tags: BIDU, NFLX
    Jul 28 7:58 AM | Link | Comment!
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