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Michael B. Krause  

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  • GoPro's IPO Pop Could Be Very Justified - A Look 3 Years Down The Road [View article]
    Turn those revenue growth #s to 20%/yr first year, 15%/yr 3 years out. Just like I don't care about HD or another few megapixels for my digital camera purchase (haven't updated in years .. am happy with an inferior but more portable cell phone), I don't think it's a strong argument that a 4 gen product is going to pack all of this latent revenue growth.

    Just tweaking that assumption alone tells a more realistic story of value. The margins are another one -- competition will come in.
    Jul 2, 2014. 09:52 AM | 1 Like Like |Link to Comment
  • Netflix Is Ready To Buy On Underestimated Market Power [View article]
    With a $3 increase and the resulting ~15 PE, you could practically slam the brakes on the rapid subscriber growth expectation and still easily justify the valuation. So implicitly, such a scenario does factor in near term subscriber losses. Given that estimates for total market size are much higher than the current user base, there's generous room near term attrition. Granted, a 30 multiple will be out of the question in the case demand is elastic as you suggest. I'd venture to guess there's not a significant difference between $8 and $10 as you suggest in a world where people spend as much for 2 days at Starbucks.
    Mar 26, 2014. 10:02 AM | Likes Like |Link to Comment
  • Unspinning The Best Buy Saga: Schulze The Vulture [View article]
    I like the attitude of the article, but it needs some work.

    Errors: 2.5X debt to EBITDA ratio is "junk"; 3.8X is the number right?

    Those bonds have a yield around 7% right now, something like 530bp over treasuries. Square in the slightly less risky end of junk, but still junk/HY.

    Lastly on your final conclusion, the markets are great at permanent extrapolation. Your last chart showing the estimation of slightly above 2.60 earnings unfortunately means something like this to the market: 2.20 for 2013, 1.70 to 2014, 1.10 to 2015, etc. (not modeling this, but just giving you an idea of what sentiment does) You quickly get the idea. Its still an earner.

    I agree though relative to other stores out there, the markets are good at seeing only the past will continue. And I'm not convinced either --- what is behind us (Amazon competitive erosion) is behind us, and not necessarily in front of us to the same extent. Why? Sales tax advantage will disappear, #1. Why else? Look at amazon's competitiveness on electronics as of late? I haven't ordered in months, as they aren't as great as they were even in beginning of 2012. Why else? Amazon was pushing rev growth with near breakeven price sales --- look at their profit margins for proof. This isn't sustainable. Their bet is on secular change of buying habit, which has certainly eroded near-term bestbuy estimates. But BB still has quite a margin to work with, and I think AMZN management is already responding to the street's balking at low GPMs by not being as competitive on price.

    So where does that leave us? There's a place for both in the retailing sphere. While showrooming is true, it always has been. I went to a bestbuy yesterday and saw tons of people walking out with purchases, a full parking lot, etc. I see a company converting inventory to cash. And ultimately surprising for next Q.

    Furthermore, look carefully at the 10-Q of recent. No mention of Hurricane Sandy's impact on last week of sales for that Q. And it most certainly did. Cut a % or 2 off on top of this sentiment, and you see how even the small impact from that could marginally affect sentiment if improperly extrapolated...

    Plenty of retailers have high PE multiples with similar debt to equity structures, only because sentiment is different. Once sentiment stabilizes away from the decline state, you'll see expansion back to 10-15. The bears will argue that will happen around .70 of earnings. I argue it'll happen closer to $2.00-$2.50 and say the worst is behind.

    I think the management and board know this as well, and in no way could take an offer from Schulze yesterday without fear of backlash after announcing sales that they already know a bit about. Not when the stock is at many year lows on improper extrapolation the last Q. This decision by the board is the right one. By mid-Jan, the results will be out to the street and the share price will dictate something closer to longer term fair value. Let's say we have scenario one: I wouldn't be surprised if we rebounded to $15-17 by mid-January off of what you see from these results, and see consensus realization that these absurd $9 estimations were just the result of robotic analyst extrapolation without critical consideration that this game is a bit more dynamic than that.

    And if I'm wrong about that, and the results are bad -- still a good decision by the board, because it gives them justification to sign on the dotted line on a lower offer (than $24+). This makes it less riskier for the board themselves.
    Dec 16, 2012. 11:25 AM | Likes Like |Link to Comment
  • Why Blue Nile's Q3 Revenues Will Disappoint Investors [View article]
    I would point out that, yes, google search is just one sample of the population just like the Alexa data is one sample. This is what statistics are: we take samples and make inferences about a population.
    Sep 18, 2012. 12:56 AM | Likes Like |Link to Comment
  • Diamond Foods: $35 Price Target [View article]
    This has been since updated to factor in today's news of no $60M penalty on the Pringles deal as well as some scenario analysis, at:
    Feb 15, 2012. 11:17 AM | Likes Like |Link to Comment
  • Sell CVR Partners, Buy Rentech Nitrogen [View article]
    Thanks a lot!
    Jan 10, 2012. 12:59 PM | Likes Like |Link to Comment
  • Sell CVR Partners, Buy Rentech Nitrogen [View article]
    Thanks a lot.
    Jan 10, 2012. 12:59 PM | Likes Like |Link to Comment
  • Sell CVR Partners, Buy Rentech Nitrogen [View article]
    Great analysis.

    By the way, what are the barriers in this business preventing new entrants (besides capex at $1k/ton)? How much ready-to-go idled plants are there, vs. shut-down plants from the early '00s that offer feasible gas supplies?

    I look at the nat gas prices here and can't help but think the heyday in nitrogen fertilizers where be one where high prices are quickly corrected by competition. There's plenty of profit margin in UAN/ammonia nitrogen fertilizers to allow that.

    70k tons here of expansion, something comparable in scale at CVR, (and I haven't looked at TNH's expansion plans) is all nothiing compared to the 7.5 million ton production shortfall in the US.

    Even 3-4 million tons of capacity would probably still allow a decent margin to producers. We're only talking about several billion dollars of capex here. Some articles I've read forecast no new plants in the works for 2012; it just doesn't make sense (with the information I am aware of). Ideas?
    Jan 10, 2012. 11:14 AM | Likes Like |Link to Comment
  • Sell CVR Partners, Buy Rentech Nitrogen [View article]
    Love your articles.

    Just started researching this sector, and can you tell me with such huge margins over natural gas, why are there few entrants and meaningful production capacity expansions in the nitrogen fertilizer space?

    Looking at these 45%+ margins, it doesn't seem like this cashcow can justifiably last more than a few years.

    What's the lead time and regulatory red tape necessary to build a new ammonia/UAN plant? And how practical is it to restart or overhaul a shut down or idled plant? What type of costs.
    Jan 10, 2012. 11:08 AM | Likes Like |Link to Comment
  • In the Wake of HP's Surprise Moves, Is It a Value Play or a Value Trap? [View article]
    The Autonomy purchase was a bad move and reveals Apotheker doesn't have a strong finance background. Too much financial leverage and too high a price for future growth. Apotheker just made an acquisition move that raised the stock's discount rate by a percent or two without an offsetting increase of earnings (since at best it'll run breakeven to 10 yr debt costs in the next few yearrs)...

    Cutting Palm and divesting PCs wasn't a bad move.

    But for 10B, he could've just poached talent and done it organically..
    Aug 19, 2011. 11:34 PM | 2 Likes Like |Link to Comment
  • Best Buy: Muddled Message on Conference Call, But Path to Upside Is Clear [View article]
    Great piece.
    Mar 25, 2011. 09:36 PM | 2 Likes Like |Link to Comment
  • The Chinese Consumer: An Unexpected Reraveling [View article]
    5-10% is just one figure ... It all adds up in the end. My assumptions are of course based off of more substantial moves.
    Jan 24, 2010. 02:07 PM | 1 Like Like |Link to Comment
  • UNG Hasn't Changed the Laws of Natural Gas Supply and Demand [View article]

    Buy low and be patient? This is short term trading vehicle with serious contango effects. If you believe in high nat gas prices, buy a producer.

    On Aug 13 08:48 AM Steve20423 wrote:

    > Classic buy low and be patient. I keep buying as much UNG as I can
    > below 13. It's reaaly easy for many oil burners to convert to Gas.
    > If you expect to make a quick buck day trading this probably won"t
    > work so well unless of course we have one good storm. Last time
    > I checked we're in Hurricane season.
    Aug 13, 2009. 11:19 AM | 5 Likes Like |Link to Comment
  • UNG Hasn't Changed the Laws of Natural Gas Supply and Demand [View article]
    Contrarian to himself.... Probably will work, just because it is the opposite of what makes sense to him.

    Feb10 gas is already 5.71. If front month did nothing, UNG would still be in the mid-12s as gas prices had recovered more than 50%. Strong contango is hard to fight. The bright side: if storage fills up and price can't go any lower even after producers are forced to shut in production, maybe that'll catalyze a big move up? Maybe, maybe not. Flip a coin.
    Aug 13, 2009. 08:44 AM | 2 Likes Like |Link to Comment
  • Unemployment Data: Nothing to Cheer About [View article]
    The bright side to this is that this is one group that does not already have mortgages to pay (generally).

    On Jun 05 10:54 AM frosty wrote:

    > Many of this year's 2MM college graduates have hit the street looking
    > and immediately joined the 9.4%. The rest will hit the street over
    > the next 4 months. Even if fewer and fewer jobs are uncreated, more
    > and more people will be seeking alpha (bad pun isn't it?). This is
    > not good news, it's a tragedy.
    Jun 5, 2009. 12:15 PM | Likes Like |Link to Comment