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The Unintelligible Investor  

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  • Anti-Recession Indicator: Corporate Profits Surge To New High In Q2 [View article]
    this is a very bullish sign to be sure ... in the most recent recession, for example, the hit to corporate profits would have impacted the ability of both corporations and their employees (who were laid off) to meet debt requirements, thus impacting bank balance sheets.

    there is the counterargument that the European banking crisis will be caused by GOVERNMENT's inability to repay, regardless of the strength of corporate profits.
    Aug 26, 2011. 11:07 AM | 1 Like Like |Link to Comment
  • Primo Water Sell-Off Is Seriously Overdone: Original Story Remains Intact [View article]
    Thanks for the "basic lesson in finance". I've got plenty of education in that regard so, again, you can save the personal attacks for someone else.

    Annualizing SG&A for 2011 and applying it to 2012 is probably not a good approach, given that SG&A has increased steadily over the past 5 years. It has decreased as a % of sales, but on an absolute basis it has increased qutie substantially. And while they may turn cash flow positive sometime in mid-2012, in the meantime, they will generate no cash to fund their growth over that period. You are indicating they will have $40 mil in operating cash at the end of 2012, which may happen, but they need cash NOW in order to get to the end of 2012.

    I also note from their investor presentation that by the end of 2012, they anticipate fully 15% to 20% of sales to come from the appliance for their new soda dispenser system. That would equal the % of sales derived from their water dispenser. Presumably, then, sales of consumables related to the soda dispenser would be near equal to sales of consumables from the water dispenser. So it appears that nearly all of their sales growth (some $90 mil in 2012) will come from this new product. so the soda dispenser would achieve in 1 year what the water dispenser achieved in 5+ years. Their entrenched and growing relationships with retailers will speed up the process, but this still strikes me as an aggressive estimate for a new product.

    Then there is the part where Lowe's and Wal-Mart make up some 60% of PRMW's sales. Perhaps adding locations with other retailers will not be so easy.

    Point is, while there is alot to like about this company, there are also plenty of questions that probably justify its current price.
    Aug 25, 2011. 01:31 PM | Likes Like |Link to Comment
  • Primo Water Sell-Off Is Seriously Overdone: Original Story Remains Intact [View article]
    this is def one of the intriguing parts of the investment
    Aug 25, 2011. 12:24 PM | Likes Like |Link to Comment
  • Primo Water Sell-Off Is Seriously Overdone: Original Story Remains Intact [View article]
    Lol ... you just provided the evidence for dilution yourself. $20 mil in capex a year (not too much lower than my estimate) and the company generates no cash. Where does this cash come from then?

    And I find your personal attacks to be troublesome. I count 7 specific figures in my last comment that I pulled DIRECTLY from the company's most recent annual review and 10-Q. Suggesting that my argument is not legitimate and came with no numbers or effort ... that really hurts your credibility. Perhaps it is you that needs to do more reading.
    Aug 25, 2011. 09:43 AM | Likes Like |Link to Comment
  • Primo Water Sell-Off Is Seriously Overdone: Original Story Remains Intact [View article]
    Again, breakeven from a cash perspective is not particularly exciting. Where does the cash come from to continue growth? Consider this: if we include the ~$74 mil purchase of Culligan, PRMW has spent $105 mil on capex (PP&E, purchases of bottles, and business acquisitions) over the past 3.5 years. That's to reach ~15,000 locations.

    With a cash burn of $8 mil/year and only $10 mil of cash on the balance sheet, that leaves just $2 mil cash on-hand to grow to 25,000 locations. well, if 15,000 locations cost $105 mil, then the next 10,000 will probably cost 2/3rds of that ... but perhaps there is less investment required this time around so call it 1/3rd or $34 mil. They will have to raise $32 mil in capital through the equity market and dilute existing shareholders by 1/3rd. SO they may have a cash flow machine by the time they get to 50,000, but you may be so diluted by then it won't matter.

    You can't double the revenue of a business in a year without a tonne of capital, especially not one this size.

    It is also a bit contradictory that you are putting all this faith in management's 2012 guidance when they just missed their quarterly guidance. and my quick read of the press release had them guiding down for the rest of the year.
    Aug 24, 2011. 07:23 PM | Likes Like |Link to Comment
  • Primo Water Sell-Off Is Seriously Overdone: Original Story Remains Intact [View article]
    I wouldn't say this business is "essentially breakeven". They've been narrowing the loss, for sure, but they can't go on losing $4 mil every half year without raising more equity.

    What is interesting is that their gross margin has been steadily improving over the past 5 years. Where exactly breakeven is is hard to determine. If they double sales from here, will that be enough to get them in the black? And if they are only breakeven, will there be enough operating cash flow to fund their growth strategy? they will have to raise equity again ... will they be able to complete another secondary offering whilst being sued for the previous one?

    If you are valuing this company I would suggest increasing the # of shares outstanding given the likelihood of an additional equity raise. VERY intriguing opportunity but the economics of the business strike me as a bit questionable.
    Aug 24, 2011. 03:13 PM | 1 Like Like |Link to Comment
  • ATP Oil and Gas Earnings a Mixed Bag, But Not the Cause of Volatile Price Changes [View article]
    that has been my strategy thus far ... but im not convinced oil prices are due for a quick rebound this time around
    Aug 18, 2011. 03:18 PM | Likes Like |Link to Comment
  • Chart of the Day: The Great Earnings-Yield Divergence [View article]
    in order:

    2) growth prospects in the near-term are dampened, but given the long-time horizon of stocks, growth prospects in general have not changed much at all

    3) this is an excellent point

    5) there a number of shareholders in very large, non-dvidend paying companies that would disagree; besides, dividend yields are also very high in comparison to previous years
    Aug 15, 2011. 02:06 PM | Likes Like |Link to Comment
  • Chart of the Day: The Great Earnings-Yield Divergence [View article]
    actually ... the cost of carry for the investment in gold will increase along with interest rates ... so gold falls in A and B
    Aug 15, 2011. 02:00 PM | Likes Like |Link to Comment
  • Pricing a Collapse That Isn't There [View article]
    you are correct that markets are "supposed" to be look ahead 6 months. but as you can see from the jobs chart, stock markets and payroll loses fell in lock-step, meaning the stock market wasn't particularly forward looking at all.

    the market is not a perfect prognosticator. if fact, MOST of the time the market is wrong on what its actual price should be.
    Aug 10, 2011. 01:43 PM | 1 Like Like |Link to Comment
  • Overvalued Netflix: Too Many Great Expectations [View article]
    you make a great point ... NFLX certainly could expand their product offering to all kinds of things ... I think that's actually somewhat baked in to my assumption that ARPU increases from $11 to $24 over that time. the thing with something as uncertain as what you suggest is that its impossible to know ... making NFLX very hard to value and much more of a gamble than an investment
    Jul 29, 2011. 08:16 PM | Likes Like |Link to Comment
  • Overvalued Netflix: Too Many Great Expectations [View article]
    agreed ... competition is lining up to steal market share from NFLX
    Jul 29, 2011. 02:38 PM | Likes Like |Link to Comment
  • Overvalued Netflix: Too Many Great Expectations [View article]
    actually ... i did not miss that crucial step. i included a terminal value portion that assumed 3% growth from 2026 to the everafter and discounted it at 12%.

    Note that future free cash flow is substantially lower than income becuz acquisition costs of future content will be much greater than amortization of prior content. Income should not be used in a DCF. Also, your ~13x P/E ratio assumes a much greater amount of growth than a 3% terminal rate would call for.

    Also, your assumption of a 5% discount rate is way too aggressive. given the high unlikelihood of this scenario occuring, a 12% discount rate is properly too aggressive.

    I agree with your statement that you are obviously not an accountant ;)
    Jul 29, 2011. 02:37 PM | Likes Like |Link to Comment
  • Overvalued Netflix: Too Many Great Expectations [View article]
    and your assumption that NFLX can grow earnings 50% per year for the next 3 years is VERY aggressive. My model predicts ~25% growth in years 2 and 3. Even at that pace, NFLX must double their subscriber base in the US.

    To achieve 50% per year, the international base would have to grow to some 10 million subscribers. I'm all ears as to how this will be accomplished.
    Jul 28, 2011. 06:09 PM | Likes Like |Link to Comment
  • Overvalued Netflix: Too Many Great Expectations [View article]
    Excellent point. i should have also mentioned that, in the model, the # of people per household declines over time as per very clear demographic trends. In the US, the number declines from 2.6 to 2.2 from 2011 to 2026.

    Internationally, the number declines from 4 to 3 ... hence why I used 3.

    12% discount rate. i can email you the spreadsheet if you'd like to poke around.
    Jul 28, 2011. 06:03 PM | Likes Like |Link to Comment
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