Pendulum

Long/short equity, value, special situations, growth
Pendulum
Long/short equity, value, special situations, growth
Contributor since: 2011
Hi David,
Thanks for your comments and questions.
Unemployment rate - Yes, if unemployment doesn't decline further, then PGEM would be negatively impacted. However, that is true for so many other companies that I don't consider it a PGEM specific risk. Furthermore, I expect that the jobs situation will continue to improve, slowly. I may be wrong, but that is my operating thesis.
Downside risk - PGEM has traded down to my downside target already. We will soon find out if I was right that the downside is limited to this level. Of course, I could be wrong.
See my other comments above and below.
Hi contrarian002,
I don't have any updates about insider selling. Looks like one of the directors exercised some options and sold shares:
http://bit.ly/19yh1ZT
Does not seem like a big deal.
I have no information about David Tepper's position.
I don't think that there is a need for daily updates. My thesis has not changed since I wrote the article. Obviously, the recent performance and the drop in the stock price are disappointing, but I have not yet seen enough reasons to change my mind. The next big catalyst (aside from earnings) is the spring selling season for the housing industry that starts in mid-February. I will watch that closely.
Hi contrarian002,
Thanks for your questions.
1 - I don't think that there is a market share issue for PGEM. However, I am not an expert on the dynamics in the market.
2 - I am not concerned about the debt load. PGEM is entering the part of the cycle where it should be able to generate good free cash flow and pay down the debt. However, if my assumptions about the housing market are wrong, then the debt could be an issue.
3 - Yes, if the stock price rises to the IPO level, then some investors may sell (especially if their cost basis is around the current price). However, this does not concern me. I have a multi-year outlook and during that time there will be many investors that sell to lock-in gains.
4 - PGEM has debt, but I think that they can manage it. There is no way to be sure that they can bounce back, but my thesis is that they will.
Please let me know if you have additional questions.
(This is not investment advice and please note the disclaimer above.)
Hi contrarian002,
Thanks for the questions.
I have a multi-year outlook on Ply Gem. I am bullish on the rebound in single family housing and see PGEM as a good way to play it. The weak results are a disappointment, but they do not change my outlook.
My timing on publishing the article was not great, but my thesis is still the same.
The real test for PGEM and other housing related stocks will come around mid-February when the spring selling season starts. If that is OK, then I expect that PGEM and the rest of the sector will do well in 2014.
The tender offer is a positive and reducing the interest expense is helpful.
Despite the fall today, PGEM is still trading above my $13.58 downside target. I plan on buying this weakness.
If you have more questions, please let me know.
(This is not investment advice and please note the disclaimer above.)
Interesting that APP is not going down on bad news. Since October it has been mostly trading in the ~$1.10 - $1.25 range. Lots of bad news over that time, but this range has held. It is a bullish sign when a stock doesn't go down on bad news.
However, APP is still very risky. Not sure how the $50 million raise will play out and it could drive the stock price lower still. Also, the December comps were disappointing.
There may be more downside, but the $1.10 - $1.25 range is holding for now.
Hi Jake,
Thanks for the comments.
Hi metal27,
Thanks for the comments. Yes, there may be a split-up at some point that could add value. But, that is not core to my thesis for now. The company first needs to see a turnaround in Europe.
Hi fastcatazule, thanks for the comments.
Hi Moon Kil Woong,
Interesting question. I view Tumi as a growth company and Coach as more of a turnaround company.
Hi Austin Guy, thanks for the comments.
Hi,
Thanks for the comment, but I disagree about the stores. Tumi's products are high-prices items and I don't expect to see the stores packed at all times.
Hi Dutch Trader,
Great call on AMOT. I need to look at the deal in more detail. Thanks.
Hi,
For more about Constellium, please see my recent article here:
http://seekingalpha.co...
Hi june1234,
There are positives and negatives for the housing market. You mentioned a few negatives, but lower unemployment and rising housing prices are positives.
Hi Bill,
Thanks for your comments.
In the article I assume that the housing industry returns to 1.0-1.1 million single family housing starts. This is not the peak level of the 2007 housing boom. Instead it is the multi-decade average.
Hi packur,
Thanks for the comment.
Hi GrowthGeek,
Thanks for the feedback.
Hi TFCAB,
Thanks for the comment.
Hi Irishtraveler,
I am disappointed. Better execution would have avoided it. However, it is not a total surprise given the balance sheet dynamics I mentioned above and the recent debt deal at 18/20% interest rates.
I am interested to see the pricing and investors. I am interested in buying more on weakness.
Hi amw1987,
Thanks for the comments.
Yes, the offering will be highly dilutive. It will be interesting to see the pricing and who the investors are. I considered this a risk, but obviously disappointed that it came to this.
I was concerned about the increasing risks because of the balance sheet situation, but held my position after the Lion deal. I may buy more following the offering.
Not much in the S-3. Would love to get more info from management.
Regarding JOEZ, I need to look at it more closely to comment.
Hi amw1987,
Thanks for your comment. Why do you think that $JOEZ has a better asymmetric risk/reward than $APP?
Hi Delta_Neutral,
Please see my original article about American Apparel for my high-level revenue estimates.
Hi manicdvln, thanks for the feedback.
Hi MTP,
Thanks for the comments. I agree that there is risk of dilution and/or raising additional debt at high interest rates. In the article I mentioned that these risks have increased over the last few months. I am not pleased about the cash/debt situation and it represents and ongoing risk.
About the downside, I think that the risk of dilution is greater than the risk of bankruptcy. Don't forget that Lion Capital, a PE firm, owns a large stake. I believe that Lion, or another PE fund, would be interested in recapitalizing the company through an equity deal before the company goes bankrupt. This is not necessarily comforting to the shareholders since a PE deal could be very dilutive to the existing shareholders. This is a big risk and any shareholder should consider it fully.
It will be interesting to see the cash position coming out of Q4. Q4 is the biggest cash generating quarter for the company, so hopefully the cash position will be better coming out of 2013.
Also, please note that CapEx may be lower in 2014. The CapEx for the new distribution center should not repeat. The company came in over budget on CapEx in 2013, which is another negative. Also, the interest going forward should be lower than in the LTM period.
There is no doubt that American Apparel is extremely risky. Although I am bullish, it is very important to recognize the risks. This is a messy turnaround, but I think there is upside if it works out.
According to "GOLDMAN SACHS AND TEEN VOGUE: Here Are The 50 Brands That Young Women Love Most" Urban Outfitters is #8 and Free People is #35. Good showing for URBN. Here is the link:
http://read.bi/1838l9K
Hi villainx,
No problem. Thanks for the comments.
I understand your deliberation. I held shares, but sold too soon. I would like to get back in the stock, but I don't want to chase it.
Hi villainx,
Sometimes I write about stocks that I own that I believe have more upside potential. However, I also write about companies that are on my watchlist. That is the case with Hain. My best investments are often companies that I watch for a while before purchasing. I believe in doing the homework in advance.
Please note that my articles are not recommendations or investment advice.
Thanks for the interest.
Hi TheWatt,
Thanks for the comments.
Hi Trendyglitz,
Thanks for the comment.