DaveMcBlues

Craftmade International: Undervalued?

Just checking back in on Jan 7, 2009... seems my observations were directionally correct.

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On Aug 18 07:15 PM Reyer wrote:

> Thanks DaveMcBlues, excellent comment!
>
> Craftmade might very well be a company in secular decline. That is
> always something to consider when valuing a company in order to avoid
> value traps. Another way to look at a company in secular decline
> is the eventual liquidation value of the company.
>
> Craftmade is still profitable and cash flow positive, it seems premature
> right now to conclude they will go bankrupt however your point is
> excellent and I agree, there is a lot of risk with their business
> model.
>
> If Craftmade eventually does go out of business what should it be
> worth today? I would work out a liquidation value for the company
> based on discounts to hard assets if you believe this will happen.
> Or, just don't swing at it.
>
> -Reyer.

Bad Mortgages Are Only the Beginning

You're correct I think. Let's look at a small microcosm of the problem... Truck and SUV leases...

Assume: $300 million citizens in USA, 200 million passenger vehicles on the road, 20% are currently under lease, 40% are Trucks and SUVs (which have taken a beating in market values as of recent), and a presumed $7,500 expected deficiency between residual and market value at end of lease term.

Do the math... That's $120 BILLION of losses, that to the best of my knowledge hasn't yet been recognized by financial institutions at large.

IMHO, the $120 billion pails in comparison to the larger problem of consumer finance noted in your posting above.

Why You Should Keep an Eye on the Credit Markets

I'm advising all my business clients to take any "available" advances against their lines of credit (ABL facilities) NOW to ensure that they have cash on hand to handle the next 45 days of cash requirements -- maybe more... whether they need it or not.

The interest cost is far less than the business interruption cost in the case that the banking system freezes and contractual advance provisions are not honored by the banks.

It's not much of a stretch to see that happening in the near term.

If anyone follows my advise, please make sure they also consider diversifying cash funds to make sure they are within protected (FIDC) limits on cash advances.

Craftmade International: Undervalued?

CRFT may be undervalued currently, but is a BIG future risk IMHO.

Big Box retailers are constantly finding ways to go direct to China to source things like lights, fans, air conditioners, etc. I don't think CRFT has realized the full impact of this trend and I don't imagine they have any real intellectual property to protect (with the exception of this season's design on products they sell).

All one has to do is look at the demise of Fedders (FJCC.pk) to see what happens when the Big Box retailers squeeze you out. Fedders business model and that of CRFT are almost identical... just different products.

U.S. Unemployment: Short and Rare

Makes sense to me. In North Texas, the economy is chugging along very nicely. I won't say we're in a growth period, but it's not bad. We've lost some business and gained some at my firm. Overall, it's looking pretty good. Just glad I'm not a house flipper in Santa Barbara...

Housing prices here are actually UP in desirable neighborhoods and inventory is not much at all. Those neighborhoods that attracted subprime borrowers may be experiencing more difficulties... probably so.