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  • Kate Spade Should Have A Higher Price To Sales Premium [View article]
    Price to sales is a flawed metric. It compares a post-financing value (price) to a pre-financing income statement item (sales). The correct multiple would be an EV/Sales ratio which would account for this company's considerable debt load. However, neither P/S nor EV/S account for FNP's (or even stand-alone Kate Spade's) inferior margins. If you consider current debt and margins, then FNP is dramatically overvalued. If you proforma their statements for asset sales, they are dramatically overvalued. Only if you assume a heroic increase in margins and sales for several years, could you begin to make the argument that Kate is worth its current value.
    Jan 15 01:09 AM | 1 Like Like |Link to Comment
  • Housing Bubble II? [View article]
    Regardless of whether housing is in a bubble, housing stocks certainly are. We have documented that on most metrics, builders' stocks are at unprecedented levels. While homebuilders generally trade on book value, I prefer earnings-based valuation measures. On an EV/S basis, homebuilders have traded between 0.5x and 1.2x over several cycles. Currently that multiple rests at 2.0x. At the same point in the last cycle, EV/S for the group was 1.2x. On an EV/EBITDA basis, multiples hovered around 10x since the late 90's. The current multiple is around 38x. These companies have a long way to go to grow into their multiples.

    If you look at the trough to peak homebuilder stock returns in this latest recovery vs. prior recoveries, the builders have run more and in a shorter period of time now. One stock we follow is a good example. The last trough to peak (2000 to 2006) showed a gain of 1000% over 6 years, fueled by the bubble. This stock is showing a gain from 2009 of 1200% over 4 years. Would anyone bet we're going to have a bigger bubble this time than last time? That's what it would take to make these stocks worth their current valuations.
    Apr 11 03:34 PM | 1 Like Like |Link to Comment
  • Short Investors Increasing Exposure To Transportation, Comms And Consumer Services [View article]
    It's the most recent available NYSE and NASDAQ data.
    Apr 9 11:32 PM | Likes Like |Link to Comment
  • Why Price/Sales Is A Dangerous Valuation Metric [View article]
    I agree with your article. It is surprising to me how many people ignore balance sheets in valuation metrics - as if the debt didn't exist.

    No one metric provides a silver bullet, but what has backtested the best is EBITDA yield (the inverse of EV/EBITDA). EV/S comes in handy when a) there are no earnings to look at like some young tech companies or b) when there is something unusual going on in margins, like if you're looking at a company undergoing a transition.
    Mar 28 01:19 PM | 1 Like Like |Link to Comment