Henry Lee

Henry Lee
Contributor since: 2008
Outstanding article. Terrific job. However, I think you missed a couple of points. First, FIVE is already down a lot from its highs on prior earnings misses. Second, this business is at its early stages. I would agree with your thesis if the business unable to grow, but management has made it clear that they intend to grow the business. I would further argue that there is nothing wrong with "the concept". It comes down to business execution. I don't think you entirely address that issue that is why they will not be able to execute. In any case, great job on the financial analysis, very impressive. Regards HL
I will add that I think they will miss earnings, and or, lower guidance if for no other reason the growing political tension in Europe, Russia and US. You have to love the franchise, but there does seem to be some headwinds developing.
Why does SA even publish this?
Would you mind clarifying the conflicting statements on the blog?
Excellent Point!
The issue I have with this article is that it is more of an advertisement for their modeling service than it has in real information. It does not contribute to a discussion. HL
As I recall (and I may not have this right), tax loss carry forwards are not transferable. That is, you cannot go around buying up companies that have lost a lot of money and use their losses not to pay taxes on profits from another business. I have not looked at this in awhile, but buying Cowen for the losses does not make sense. (Please do not hesitate to disagree and tell me why I am wrong)
You are a Quant...HL
I think you want ask what is their competitive durable advantage? What do you think their long term return equity can be through a market cycle? Cowen's business is a people business. The assets walk out the door every night. Who is management and why are they better then Jefferies or GS? Regards HL
I want say I have been reading your stuff for a while… great stuff, excellent "thinker", most impressive…. thank you for your efforts!!! HL
Great observation, right on!
As I understand the customer/manufacturer base now, there are no alternatives to PRLB. Let me repeat, there is currently no company that can do what PRLB can do (i.e. speed and quality of workmanship). They have started to build proprietary databases of manufacturing processes which is unique. I would suggest designing a difficult "device" that needs to be proto typed and then shopping it around, and seeing what comes back. I think you might be surprised. The valuation is very rich, and growth might slow, but a short… there is an easier way to a buck.
It would be good if the author took the time to understand why the company is unique, rather than a generic analysis of financials and insider trading….and not just another 3D printing pumped with hype…granted stock is richly valued, but for good reason. (no position).
Great article! Do you have an opinion about Approach (AREX) which has approximately 140K net acres (I think?) in the Permian Basin? I had heard that the barrels per square mile was closer to 500K not 1M. Do you have any thoughts on PAD drilling and the potentially higher expenses associated with that? Thank you. HL
Hi Brad:
Nice analysis, nice write up. If you would, explain to me why you think a 6.4 total debt to ebitda is not very risky? Because, it strikes me as a great deal of leverage. I would prefer to half that level. Regards HL
Hi Chris: I have been an early investor in GKK before Dugan took over. I could see that all the CDO crap was non-recourse, so this was a very rare "net-net" despite the lack of transparency.
However, I wanted to offer a rebuttal to your bullish thesis and here your thoughts. (1) GKK is in a commodity business. There is nothing special or proprietary about this business. (2) All triple net leases are essentially a "fancy bonds", so rising interest rates will negatively impact the business. (3) This business is highly leveraged with not only GKK employing leverage but also the lessee as well. (4) The success of WP Carey was due to a 30 year bull market in bonds and that does not exist for GKK.
Finally, I remain an investor, and I am looking forward to seeing if Dugan can do the same type of job he did at WP Carey which I expect he will. I see GKK as a "start up - venture capital investment". You are betting on management, Dugan. He has 20 year track record and a pile of cash. "What do investors want?" It looks like most investors do not get it.
PS You did not mention the new line of credit with DB for $100 million at Libor + 285 (as I recall?). It looks like they are going to refinance the preferred. Any thoughts?
This article gives only superficial consideration to these companies.
Here are my thoughts. I think the recent 20% rally was due to short covering. The shorts have given up on the liquidity crisis thesis. I would like to see further improvement in the Walnuts business. Regards Henry
Dear Casey: I hope you make money with your investment but your article does not touch on the important issue of the use of derivatives and acquisitions the appearance of pumping up production and capitalizaiton of goodwill.
A second point, these E&P MLP's are not good investments; the business model is broken. They are unable to reinvest and create reserves at a low enough cost per BOE. In order to see this in the financial statements, you need to look at several years of cap-ex, reserve additions and acquisisitions. The decline curves on fracking are too steep. The cost of PAD drilling has gotten too expensive. It is a mistake to rely on PV-10 as a measure of value. It is a flawed measure for attqching a monetary value. You add all this up, I think the outlook is "tough" to poor. But good luck. I hope you are right. Regards HL
Why did you write this article on this company... it trades 60K shares a day.....
I think your article is missing an important definition, and that is "What is the definition of intrinsic value?" I am not sure everyone has the same definition or might be familiar with definition, because if they did, they would agree that if a company can buy back their stock at less than IV then ii is accretive to shareholder value assuming IV is correct. This is not rocket science. Regards Henry
Hi Jeffrey W. - I would offer that either that the cost of education must come down (alternatively, income could go up, but doubtful). You are seeing the development of MOOC's (massively open online classes)...see Georgia Tech. We are on the edge of seeing a paradigm shift in education which should lower the cost dramatically in the next ten years. It will have an impact on student loan lending. I think that students need to realize that an art history major from a small liberal arts college is unlikely to make enough money to pay back 200K in student loans pursuing her choice of study as a profession. In this sense student loan market is broken. A student should not be able to get loan for that degree just like a homeowner with mortgage. Regards HL
First, let me say this is great work. Thank you. I have been looking at many of the educational companies and so I have some thoughts on the student loans and as it relates to the long term success of FMD. It strikes me that the student loan market is broken for several reasons. It would appear to me that current rate of defaults is too high to compensate an investor for the risk? Agree or not? Second, the cost of education and the value it provides (i.e. cumulative lifetime earnings) is out of balance. Education costs too much relative to the earnings a student might earn. So the student loan market is deeply flawed, broken. In light of these issues, you still believe that FMD migh succeed? Regards HL
Mr Zeits: A brief question, I have not seen any of your thoughts on the cost of creating reserves for upstream e&p companies (MLP or otherwise). What I am specifically referring to the multi year cap-ex spend divided by the increase in reserves adjusted for production on a BOE basis. My concern is that many upstream companies appear to have a very hard time replacing reserves at an effective price per BOE that would allow them to earn an attractive return on capital. Have you seen this trend or examined this issue? Thanks HL
I would also add that PV-10 is a flawed formula to determine value. One could argue that it helps with relative valuation (i.e. one company to another) but I don't think it has much value trying to determine the what is in ground. There are two reasons for that (1) fracking new acreage is very complicated and expensive (i.e. length of laterals, number of stages, spacing of stages) and (2) decline curves are very difficult to accurately estimate. When you combine these two challenges along with management's need to often raise significant capital, the outcomes are not predictable. Regards HL
Your statement regarding Buffett is only partially correct; he has billions of dollars in in KO and WFC and other companies. Index funds are broken. They are for "individuals" who cannot read a financial statement and don't see the difference between Exxon and Enron or Worldcom and Wells Fargo. This is what I can guarantee you...you invest in an index fund you will underperform the index net of fees. The SP500 has not made money in for investors since September of 2000. Your statement that everyone cannot be above average obscures the notion that you invest because you seek a return on your capital....forget about averages. Indexes are likely to perform poorly because baby boomers and pension funds are likely to withdraw their capital from underperforming investment products and the weight of the supply will drive the price down. Index funds are for those who are too lazy to do the work....
If index funds are so good, why is Warren Buffett, the third richest man in the world, not invested in index funds? Could you explain?
You should do more research on demand and cost of propane. Your statements seem to suggest a lack of understanding.
I think it is fair to say we have seen a Phoenix type recovery in the auto industry; why would by a small manufacturer at the top of the auto cycle? I try not invest in cyclical companies when the demand cycle is likely is peaking. Just a thought?