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Beware of Internet ass clowns

|Includes: Jackson Hewitt Tax Service Inc. (JHTXQ)

Gurufocu is full of columnists who are self proclaimed CFAS and stockdoctors but have had poor success when suggesting stocks

Check this out from a CFA trying to peddle a book written in on Nov 11,2007

 

 put tax preparation in the same boring category as a trip to my local dentist. However, owning Jackson Hewitt -- a tax preparation company -- hasn't been a dull adventure.

Soon after we purchased shares for our clients, the offices of one of their franchisees were raided by the U.S. Justice Department. The stock (JTX) collapsed.

The franchisee was accused of falsifying tax returns for thousands of taxpayers.

The fear was that the alleged practices were widespread and that management was complicit with the franchisee and that the brand may have been damaged and lawsuits would follow.

However, the management had no incentives to resort to such activities given that they had a great business on their hands; it made no sense for them to do something that stupid. And we found recently they did not. The IRS did not find anything and management settled the issue in September, agreeing to a $1.5 million payment to resolve the matter.

Though the incident initially made headlines in the localities where it took place, the national media was preoccupied with more important developments at the time (i.e. Paris Hilton going to jail) and thus the Jackson Hewitt brand was unscathed.

We liked Jackson Hewitt management when we purchased the stock, but we were even more impressed with their response to this incident: they hired an ex-IRS commissioner to head an independent internal investigation and clearly communicated to investors about the probe.

Here was an opportunity. The "bad news" (which now was not really bad) drove the stock down to about 13-14 times earnings. However, Jackson Hewitt has several growth drivers that should bring earnings growth in mid- to high teens for years to come. It only has a 4% market share of a very fragmented market. Half of its stores are less than five years old, thus same-store sales should be on the right side of the ledger. Management spends every penny of free cash flow to return to shareholders through a 2.2% dividend yield and stock buyback. Jackson Hewitt bought 20% of the company over past four years.

Our constitution explicitly guarantees us pursuit of happiness and implicitly it guarantees death and taxes. Thus I have a feeling that Jackson Hewitt will be around 20 years from now, it will have larger market share and will be a lot more profitable.

 

The stock was 32.02 when that was written .It closed yesterday at 4.32

 

Simple mistake by the author? I don't think so .Why buy a stock of abusiness which is UNDER INVESTIGATI... an INDustry like accounting where Trust is paramount.When the Dow hit all time highs just days earlier.

No offense but that goes against Buffett's number 1 rule .DONT LOSE M...

 

Over the next month I will continue reporting on these foolish stock picks from internet ass clowns