The Lonely Value Investor

The Lonely Value Investor
Contributor since: 2009
Company: Schacht Value Investors, LLC
Saying that GME is "making up sales" is quite an accusation. It seems the line the article is referring to is NOT the same as the "digital receipts" that the company is referencing. What "doesn't add up" is what smoking gun the author thinks he has found. Perhaps, just maybe, (sarcasm intended) a portion of "new video game sales" falls into the "digital receipt" category??? The author seems to not understand that the "digital" line item he was eager to highlight is a subsection of "digital receipts" NOT a GAAP representation of the same thing. You CAN'T make up a receipt. You either received it or you didn't. So there is no "gotcha" in this piece. So the number the company is reporting doesn't seem to be a non-GAAP number at all.
GME has been pretty straightforward about the risks to its retail business. They merely stated that they think the decline in traditional gaming retail sales is slower than folks may think, that GME's imminent death is greatly exaggerated, and that there is nothing preventing the company from being a player in digital sales. The company's balance sheet and free cash flow seem to support much of this argument. Meanwhile, this article doesn't seem to address the author's point... rather it seems to be an anti-GME piece in search of a point. I'm not GME cheerleader, despite owning a few shares, but the author's assertions are pretty damning, while his evidence is weak at best. Not sure it is worth their time, but perhaps their legal dept. should take a look at this article. At the risk of repeating myself, it is very dangerous to accuse a company of making up sales.
Perhaps BBY or WMT overpaid for your items? Maybe it is those companies who don't know what they are doing in the used game business? Not sure that your experience is any indication of GME's eventual lifespan and/or its future in selling used equipment/games. Either way, when my "days are numbered", I hope to be generating $9 billion in annual revenue. Perhaps this will be the first company that is net debt free with healthy cash flow to ever die? I could be wrong.
If you can find some of my OLD articles on here, it may illuminate some of the history on Mr. Cato. He holds a small equity stake and a huge voting stake. His rubber stamp board pays him enormously for "who knows what". Luckily, as I said, the staff is very capable. And I like the business... but I agree with your valuation and opinion. Fair value is my vote also.
It's about time... despite what 2Reb says above, I find John Cato to be a major impediment at the company. Horrible governance. But the numbers have always made sense and I like the business. Just not used to having to own a company in spite of its leader. CFO is excellent and it seems that rational minds have started to prevail at the company. Do you have a current price target?
Nice work, Nick... this idea is paying off for both of us! Congratulations.
The real beauty of KYO is on the balance sheet.
Take heart Geron shareholders: The company has not diluted your ownership in the last 12 months... probably just a short-term reprieve, however, since GERN is still burning cash. Market value when I wrote this piece... $650 million. And shares outstanding have risen from 100 million to 129 million in those 3.5 years. The market cap is slightly lower now. But shareholders have been diluted even further.
Keep up the good work, Holmes. I love the contrarian bent and I'm long HMY. I find it amusing that you hold to quaint old time ideas like actually reading annual reports (sarcasm intended) ;-) As a value investor, I guess it should be seen as a good thing that so few people look at or care about financial statements anymore.
Never been called politically correct before.... also never been called holier than thou. In any case, those who write articles for SA know that the author doesn't typically write the title. They made quite a few of mine into promotional materials. In any case, people looking for investment insights should be smart enough not to make any decision based on a headline. Part of the comment you posted was constructive and some of it was just gratuitously nasty. I'm sure you know which is which. I'll leave my comment stand. Interesting that I didn't mention any names.
So the author was wrong... most of us make mistakes every day. But there are those commenters who just can't leave anything alone. They have to get on here and spew insults. It is usually someone anonymous, who has not penned even one article. It is not healthy for the SA community and says a great deal more about the insulter than the insultee. Sad. I applaud the author for the effort and generating discussion. Everyone on this site is striving to improve their investing. How about we do it without the insults and personal attacks?
Price when I wrote the above $34+... price now? ouch.
VOD's sale of SFR to Vivendi was well timed and at a great price. This sale (should it happen) looks to be at a great price. The company has hardly been profligate with the VZ Wireless dividend money to date. I think management decision making in the recent past has been quite good. What shopping spree do you foresee? You level an accusation but don't do much to back it up.
Yes, the capital markets are wide open for the likes of DLR and rates are low. It will be forever thus? Sure. Hope springs eternal. Mr. Market registered his opinion again today. I think you are purposefully missing some of the salient points being made by those who disagree with you. I don't have a dog in this hunt, but I also don't believe that trees grow to the sky, at least not uninterrupted ;-)
Relax, Barribas... sold DLB at a tidy profit months ago... did you check the date of this article???
Buffett and other value investors have also warned investors about companies that have to constantly access capital markets. DLR clearly falls into this category. Are there risks in this? No?
It would be nice to have the experts address some of the very real questions being raised by skeptics. The effect rising interest rates will have on DLR. FFO and capex/depreciation have been mentioned by some commenters. FFO seems to imply that depreciation is not a real expense... true, it is not a cash expense, but it is supposed to approximate an actual cost... Do DLR's buildings not deteriorate with age? FFO seems to overestimate the long term earnings power of any REIT. Is DLR's success in recent years due to some inherent brilliance on their part or just a function of declining interest rates? Seems that all REITs, regardless of quality, have been levitated. Is DLR doing anything that can't be duplicated? Won't competition (lower cap rates) and rising funding costs have a long term negative effect?
It seems DLR has (at least according to Mr. Market) hit the first real speed bump in years, if not its history. It will be interesting to see how shareholders react to it. They have not had to deal with many clouds in the sky.
The Highfield's "short" can be called "foolish" but that hardly addresses the issues they raise. Perhaps to DLR bulls the criticisms are not valid, but DLR's undervaluation is far from self-evident either.
there are many reasonable arguments to be heard on both sides. It would be nice to hear more of them.
I agree with this... current management has royally screwed up and should be shown the door. My only point is that the market seems to only see the negative. They do have net cash and assets of value... it could be a LOT worse.
the recent conference call transcript speaks directly to your concerns... frankly given the balance sheet and the apparent lack of any interest in this article (as evidenced by the number of comments) makes me bullish. The bad contracts in its pipeline appear to be very manageable. And given the cash, assets, and lack of debt, the backlog issues need to be put in context. I think the market is overweighting them.
Extremely insightful, thank you!
I apologize... I misunderstood your previous post then.
At the end of the day, the debt and declining margins are largely due to the same thing... the purchase of the remaining stake in SFR. Vodafone took Vivendi to the woodshed on that deal. Well played. A stupid price that Vivendi played.
Even with that negative, the assets are there and we are starting to see a light at the end of the tunnel. Given the time that has passed, it will end up being a mediocre investment at best for me.
I'm sure not all of your investments have turned out as you planned. There really is no need for sarcasm. I still think that the Vivendi pieces are worth more than the whole... for some of the reasons you outline.
The P/E multiple at Loews is largely irrelevant... if you understand that Loews trades at a discount to the sum of its parts, why do you care about the P/E... especially when earnings are understated due to the Loews structure. Please read the article above again.
If Loews sells at a discount and it owns the majority of CNA stock... and CNA sells at a discount to intrinsic value then you are getting a double discount.
I get a double discount on CNA when I buy them using Loews as my vehicle.
Is the low valuation "masking" the "series of problems"? Seems like the market is all too aware. Perhaps the valuation is cheap BECAUSE of these problems. Anyone with a historical perspective on Cato knows that this company goes through periods like this. And it bounces back thanks to an incredibly loyal customer base and operating discipline.
I'm no fan of the CEO or Cato's corporate governance, but I hold the operating folks and the finance people in high regard.
What may look like inadequate expansion could be a prudent throttling back on capex in light of a weak operating environment.
I suggest that Cato bears take a longer term view on this company... fcf generation has be impressive (especially if one adjusts for new investment capex). Also, I'd suggest that it is dangerous to bet against any company with no debt and a pile of cash.
The last time I recall making this warning was in response to an article on Motorola Mobility (recommending a short when it was pegged at a 52 week low).
I suggest that all readers who don't know how that ended to Google it. Ha ha.
LONG CATO.
A lot of the cash flow mentioned is not necessarily "free". How do you get from $150m or so in net income to CFO of $300m plus? Answer: A lot of help from working capital (decreases in receivables and increases in payables). Better make adjustments for that before going any further because such changes are not sustainable.
The balance sheet is a thing of beauty and the capital allocation decisions seem intelligent. All the talk about this company's death seem premature... Revenue may be flattish but it has be growing if only slightly. Given the comments above about competition eating CHKP's lunch... I expected to see double-digit % declines in revenue.
Palo Alto is hardly an undiscovered gem. Revenue growth seems to be the only attraction so far. At current prices, CHKP seems to have more appeal... certainly the warts seem priced into the stock. Palo Alto seems priced for perfection. Perhaps the truth is somewhere in between.
I applaud Mr. Huber for saying that CHKP deserves a look.
certainly you would agree that their public holdings should not be valued at their carrying value but rather their market value, right? The NAV (adjusted book value) for Loews is closer to $55 a share. Given the structure of Loews, you can't just look at it like any insurance company. You have to value the parts. Pure BV is meaningless at Loews.
A sum of the parts gets you to at least that $55 per share number. In this market that allows for pretty respectible upside.
So just to be clear... there is no price at which SKUL is a buy? Companies can be in a commodity business and have declining margins, yet still have a value greater than zero.
The question remains... what is SKUL worth? Zero?
No good deed goes unpunished... writing on SA taught me that. When I wrote positively on Ebay some years ago, I was called a paid shill for the company. A bunch of disgruntled Ebay sellers had migrated onto the site. I was the village idiot being paid by CEO Donohoe to lure in the unsuspecting masses.
It was a horrible stock pick (sarcasm intended) ;-)
I'm rather new to the whole Skullcandy story.... are the nays here saying that SKUL unattractive at ANY price? If so, why? Without mocking the author, certainly you can see why someone would be attracted to the company at current levels?
So you disagree... fair enough. The question remains: why?
Brilliantly stated... thank you!
And yes, mc2406... so nice that the author refrained from drawing any parallels... none at all!
Wexboy, you are a true humanitarian... well said!
Excellent article, Thomas.... I am amused by the comments about goodwill. Perhaps someone needs to explain how it comes to be and that goodwill on a balance sheet is not always a bad thing. People do seem very animated when they see it though. They don't know what it is but they are pretty sure they hate it ;-)
Sorry for the side comment... not to detract. It is a great piece. As an NOV owner, I thank you!
It is a complete lack of intuitive understanding... the inability to read a cash flow statement is just a symptom. Sad. But don't bother trying to educate too many people. Most will just get mad and yell at you about how YOU don't understand. Those who learn the lesson will just be competition for the rest of us ;-)