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The Unintelligible Investor  

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  • ARI Network Services: Deep Discount For Market Leader With Expanding Market Opportunity, Build-And-Sell Management Team [View article]
    Hhhmmm ... interesting one. I have seen the high growth rates available to this models first hand, especially when the business can bolt on related verticals to their existing platform/offering.

    The one point that jumps out at me is the volatility and exposure to the business cycle in ARI's core verticals. Sales in these products have a high beta and the businesses that sell them tend to struggle greatly and a high percentage go out of business when the economy troughs.

    The recurring revenue model is a great one when you are serving large corporate entities and providing essential services in HR, health, etc. Maybe the worst you can expect when those businesses run into trouble is a renegotiation of price.

    But the recurring revenue model is pretty useless when your customers are going out of business.

    Care to comment on this aspect of the business?
    Feb 4, 2015. 09:14 AM | 1 Like Like |Link to Comment
  • The Oil Sector Stock I Dream About Owning One Day [View article]
    At a run rate EPS of ~$4, the current valuation is still pretty hefty, so I, like you, am going to wait (and pray) for a major, all-out capitulation.

    I have further research to do, but my initial thoughts are that the fears of a severe decline in technical spending due to declining shale are somewhat overblown. Oil production from cheap, conventional sources is still in long-term decline and CLB has played a major role in the technological innovation that has led to, among other things, the cheaper shale plays that have altered the Peak Oil paradigm.

    There are a couple of things that provide a buffer to this low oil price environment. First, CLB's main revenue driver, shale, is not the highest cost of production ... that would be deepwater and oilsands ... so I suspect in the long-term shale will remain while oil sands in particular suffers deep cuts (although shale might be more volatile in the short term).

    Second, if shale does experience a prolonged period of lower spending ... now all the unconventional oil plays that have provided production growth over the past few years will be severely impacted, and, with cheap traditional production in decline, there would be a supply pinch that should bring oil prices back up. So CLB would experience continued pain over the medium term, but with its high free cash flow, it will survive the lean period without any real risk to its future as a going concern ... and then it would be primed for explosive growth yet again upon the return of higher prices.

    Third, CLB may be somewhat counter cyclical in that its services can help bring the cost of new production down. So its services (or at least some small portion of them) may become MORE valuable as prices decline.

    All that to say that this is likely to be a great company for years into the future. Just have to get it at the right price, as you say.
    Jan 30, 2015. 09:46 AM | 3 Likes Like |Link to Comment
  • Canadian Housing: It Actually Is Different This Time [View article]
    this is a very interesting wrinkle. i think it will only exacerbate the housing problem, delay the inevitable, and ultimately lead to an even more spectacular decline.

    Or it may be a signal that it is already happening.
    Jan 22, 2015. 09:45 AM | Likes Like |Link to Comment
  • Canadian Housing: It Actually Is Different This Time [View article]
    http://bit.ly/1yD5ZNK

    looks like it has begun. western canada is sure to get beat up if $50 oil continues. and this could impact the east as well, but the tale of 2 economies in Canada will likely continue, only in reverse, with ontario benefiting from $.80 dollar and sub-$1.00 gasoline.
    Jan 19, 2015. 09:27 AM | Likes Like |Link to Comment
  • Fannie Mae: Round One To The Government [View article]
    i have to disagree with you. I think it isn't that difficult to value. Its no different than valuing any other investment, except that in addition to a standard valuation for the company as a going concern, you have to weight the value for a binary outcome. Either its worth $0 or its worth the value as a going concern.

    The point is determining if the expected value is greater than the current price.

    The horse you bet on at the track might PAY 100-1, but its actual odds are probably even worse. You shouldn't make the investment.

    FNMA will probably pay 20 to 50-1 (especially from a $1.50). And I think the odds of that outcome are alot better.
    Oct 3, 2014. 10:11 AM | 2 Likes Like |Link to Comment
  • Countrywide PLC: 11.5x Trough Earnings With Ample Buyback Capacity; 90-130% Upside [View article]
    Nailed it. 16x free cash is a pretty hefty multiple in a mature industry.
    Jul 24, 2014. 09:45 AM | Likes Like |Link to Comment
  • Education Companies Finally Reflecting What Their Degrees Are Worth [View article]
    BTDSTR, I read your article as well. In an avalanche of bad data, you are essentially focusing on the fact that new student acquisition increased in the university segment for the first time in a long time and pointing to that as the early sign of a turnaround. This may be wishful thinking, but it is a distinct possibility.

    Fact remains they burned $35MM in cash in 1Q.
    Jun 13, 2014. 01:06 PM | 3 Likes Like |Link to Comment
  • Education Companies Finally Reflecting What Their Degrees Are Worth [View article]
    Strong Argument. I often take the same approach of "backing out" the outcome that is predicted by the prevailing price.

    Still, I think a couple of assumptions you've made are a bit aggressive. A 7% discount rate offers very little risk premium for an investment loaded with "a rather large amount of risk". Also, I realize most iBanks and PE firms simply deduct cash for EV calculations but I've always thought net working capital is a more true reflection of the resources "earned back" from a purchase.

    With those 2 adjustments, CECO looks expensive relative to the 1Q performance (hopes for improvement notwithstanding).

    This company has sped off a cliff and is trying to grow wings before it hits the ground. Even without a looming risk of default and a cash hoard, it can't afford too many more quarters of $35MM cash losses.

    Either way, you've got a new follower.
    Jun 13, 2014. 11:15 AM | 2 Likes Like |Link to Comment
  • Misreported Financial Website Stats Present Hidden Opportunity In National Research Corp. B Shares [View article]
    http://seekingalpha.co...

    Sounds familiar .....
    Jun 7, 2014. 07:55 PM | Likes Like |Link to Comment
  • Gannett: Compelling Risk Reward Due To Overblown Regulatory Risk [View article]
    Ok, understood. So they are not a cable provider and don't make fees off of subscription.

    But I think the issue still stands ... if there are less subscribers, there are less eyeballs on the tv screen, less money for advertisements, no?
    Apr 2, 2014. 11:17 AM | Likes Like |Link to Comment
  • Gannett: Compelling Risk Reward Due To Overblown Regulatory Risk [View article]
    Johannes,

    Excellent work. Best opportunity I've seen on SA in months. Given all the work you've done, I was hoping you could enlighten me a bit as to the industry dynamics of independent broadcasting, as I know basically nothing about it.

    Does Gannet broadcast its own content or are its various stations affiliates of the other broadcasters that provide the content?

    How does Gannet's broadcasting segment fair in the face of "cord cutting? My understanding is this effect is yet to really materialize, but their certainly isn't alot of momentum as far as subscriber growth (among the major providers at least).

    If subscriber growth is poor, what is really propelling the "high growth in broadcasting" that you speak of?
    Apr 1, 2014. 12:54 PM | Likes Like |Link to Comment
  • Willi-Food International Should Be Taken Private For A Potential 100% Gain [View article]
    This is a tangled mess no question, which does often lead to opportunities. And generally, you can make money by following the incentives.

    BUT, If Granovsky's intention all along is to simply take the company private, why not tender an offer for the whole company NOW? Why wait for a full takeover until later? If he could buy the whole company at $10 per share now (which may have been accepted by minority shareholders), why start doing share buybacks as the stock appreciates above $10 or offer a 30% premium to some higher future price?

    There could be legitimate reasons for this, but if he is so flush with cash and desperate to reallocate his assets, why wait?

    Perhaps he sees the cash hoard and an opportunity to purchase a controlling stake at a relative discount with the intention of milking the cash in the dubious ways so often employed by other majority holders as you mentioned.
    Mar 26, 2014. 11:41 AM | Likes Like |Link to Comment
  • JGWPT Holdings - A Strong Moat In A Niche Industry With 50%-Plus Upside [View article]
    Yes, I think they could technically raise the discount rate to whatever they want, but at some point will that have an impact on the demand for their services?

    On the surface it would seem that the higher the discount rate, the less people will be willing to part with their settlement.

    But if we could think of these settlement holders as rational actors (and investors), then technically they would be willing to pay a higher discount rate because they could invest the proceeds at a higher market interest rate.

    Or more realistically, they will be willing to pay a higher discount rate because the interest rate on their personal debt is also higher.
    Jan 28, 2014. 03:01 PM | Likes Like |Link to Comment
  • JGWPT Holdings - A Strong Moat In A Niche Industry With 50%-Plus Upside [View article]
    Thanks for providing further details. This has been a popular one of late.

    I wonder about the impact of rising interest rates on the profitability of new business. Is their any ability to charge clients more than the 11% discount rate in order to maintain its spread if funding costs increase?
    Jan 28, 2014. 12:01 PM | Likes Like |Link to Comment
  • Why Leverage Is Pointless [View article]
    My disagreement with this article is the defintion of risk that is used. Risk is essentially being equated to volatility here. Volatility, in my mind, does not equal risk. Volatility refers to the deviation of a stock's price movement around its mean in EITHER direction (up or down). Real risk, at least the risk I am trying to avoid, is the potential for the investment to move from the upper left to the lower right over time.

    And this article appears to argue that you should increase your exposure to your less volatile positions, even if you are leveraged, using historical volatility as an indication of risk. Well, if you have very large positions on historically low volatility investments, and something changes and those investments become high volatility (which they can ... see LTCM), now you're broke.
    Jan 24, 2014. 10:23 AM | 2 Likes Like |Link to Comment
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182 Comments
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