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Gordon Kwok

 
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  • Sturm, Ruger And The Case Of Depreciation Deception [View article]
    Yannick,

    You are absolutely right. The biggest question is what the future operating earnings will be if you strip out the effects of politics around gun control.

    With the stock trading currently around 10 PE, it's hard to believe they will exercise the buyback program given the past 10 year PE numbers you posted (i.e. average PE over that time period is likely higher than 10). Moreover, in the past two years, the executives started selling when the price was $45 and all the way up to $75. I doubt they would initiate a buy themselves or with the company's money if you take Fifer's statement seriously. From this, I judge that the stock price is still over-valued even at 10 PE.

    If you believe after stripping out event-driven or politically-driven demands, the earnings will revert close to its historic level (maybe a bit higher if you believe in new demand from women and general population growth). This type of reversion happened back in the 90's, and will happen again over the long-run.

    My take on valuation.
    The EPS was between $0.03 to $0.16 in 2004-2006 and $0.46 to $0.43 in 2007 and 2008. Based on these earnings, the current price of $50 implies a PE >> 100. In other words, the current PE of 10 implies a price of $5. This may be too low given the new demand from women getting into the sport. However, it's a far cry from the current price of $50.

    I see a bubble bursting short of artificial support from further negative events (another senseless public shooting prompting more debate on gun control laws). As a value investor, I would not touch this stock given the unpredictable future demand and lack of economic moat. However, as a momentum trader, I would wait for the next round of event induced spike and short the stock when it reaches $80+. Thoughts?
    Aug 20 06:40 PM | Likes Like |Link to Comment
  • Sturm, Ruger And The Case Of Depreciation Deception [View article]
    Fendermon,

    Thanks for your reply! I stand corrected. I should have reviewed the primary source instead of relying on editorial posts. The board of directors approved expansion of their buyback program back in Feb from $8 to $25 million, and then again from $25 to $100 million at the Q2 earnings announcement.

    According to the Q2 earnings transcript, Sturm, Ruger & Co will only execute the program if the price drops below the average of historical earnings multiple. CEO Fifer stated:

    "Stock repurchase authorization, yesterday the Board of Directors expanded this authorization to repurchase shares of common stock from $25 million to $100 million. It is important to note that raising the repurchase authorization to $100 million does not mean we are committed to buying $100 million of stock. We believe that the market should set the price of the stock and if it is trading in the range of its average historical earnings multiples than the company should sit on the sideline."

    It does beg the question of what constitutes the historical average PE. Thoughts?
    Aug 19 11:23 AM | Likes Like |Link to Comment
  • Sturm, Ruger And The Case Of Depreciation Deception [View article]
    William,

    I think you bring up a good point in questioning the integrity of management, in particular the CEO. It's enlightening to see him liquidating his substantial position as the stock price ascended to its historic high. I know many investors say insider selling is not a good signal, for there may be many reasons for disposition. I agree to that sentiment in general. However, when the CEO and other senior executives were massively selling their positions when using the company's cash to execute a stock buyback program, it's highly suspect. Was it a coincidence that they sold before the slowing demand finally shows up in the company's financials in the past two quarters? Caveat emptor!
    Aug 19 04:47 AM | Likes Like |Link to Comment
  • This Bull Still Has Legs To Run [View article]
    Bill,

    Thanks for your response! The attached study provides the historical perspective on three decades of financial deregulation that ultimately results in the crash of 2008.

    Source: Center for Economic and Policy Research
    http://bit.ly/1pXxo79
    Aug 19 04:41 AM | Likes Like |Link to Comment
  • This Bull Still Has Legs To Run [View article]
    j6813f,

    Thanks for your response! To be clear, I am not advocating or condoning FICO's decision to ignore medical debt. I am simply stating their recent action, and how that could result in excessive underwriting to subprime borrowers. We all know how that story ended in 2008. So I agree with you that enticing consumers to get deeper into debt to stimulate the economy is crazy and as Bill Dixon said below, immoral.

    Your proposed solution is ideal, though not executable. Companies will not freely and willingly implement across the board wage increases. Given the uncertainty on future consumer demand, they would rather improve their total shareholder return via stock repurchases and further cost improvement (most easily achieved by layoffs, investment in automation, and outsourcing/offshoring), as they have done in the past few years. All of these cost improvement measures are deflationary on consumer spending.

    Stimulating consumer demand is extremely difficult in this low growth environment. Monetary policies can only do so much, and the Fed has done a masterful job in stabilizing the economy through a much needed deleveraging process over the past five years. The executive and legislative branches need to step up with expansionary fiscal policies to create more high paying jobs domestically to improve personal balance sheets in order to stimulate consumer spending. One way to do this is by reducing income taxes. Another way to do so is by making the corporate tax structure more competitive globally to reduce tax inversion and incentivize more foreign direct investments. Of course, there are many other expansionary fiscal measures, but don't hold your breath from the current administration. So far, this Congress has failed to do so materially to prime the pump on corporate spending and hiring.

    Finally, I have to respectfully disagree with your point on inflation. With so much money pumped into the system, one of the biggest concerns the Fed has is inflation, as it is nearly impossible to predict if and when the increase in money supply will finally hit Main Street and the economy. To keep this weak economy humming, Yellen will do everything in her power to keep inflation at bay so as to prevent an inflation-induced recession. If inflation goes up significantly, the Fed would need to increase interest rate to put it under control. Just think what 1% to 2% increase in interest rate would do to the housing market and disposable income of a highly indebted population. If Yellen would have her way, she would want to have a low inflationary environment for the foreseeable future. Just my humble opinion.
    Aug 19 04:41 AM | Likes Like |Link to Comment
  • I Justify My Tesla Purchase With This Analogy [View article]
    Andy - Glad to see that you're taking the feedbacks with strides vs. being defensive. :)

    Dollar averaging down is not a prudent investment strategy in and of itself, nor is investing by analogy. However, if your long-term view is that Tesla will become a dominant player in the auto industry and deliver against their stated objectives and milestones, perhaps their valuation will be more in line with the current price, maybe even higher. At this moment, it's really a crap shoot. The challenges facing them are quite formidable:

    1) reducing battery costs by more than 50% to hit target Gen III pricing while maintaining gross margins, mileage / range, and performance

    2) competitive response from major industry players

    3) capital requirements to fund major capacity expansion in-house and/or externally

    4) further innovation required in battery technology to enable Gen III. I could be wrong but I think Musk alluded to it in the Q3 discussion when he discussed giga-factory.

    5) continual product safety and quality

    6) on a more macroscopic level, the state of the world economy which may significantly dampen the demand as well as regulatory environment globally.

    Some of these factors are under Musk's control; others are not. It may be well worth your time to invest based on market understanding commensurate with your time horizon and risk tolerance.
    Nov 8 12:55 PM | 1 Like Like |Link to Comment
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