On January 18th, we wrote about Borders Group (BGP), and how we believed the company provided attractive value between the $0.90 – $1.15 price ranges. Though the company is facing numerous problems, we believe that at these levels there is a considerable margin of safety. Let’s face the facts; Borders Group is a widely known franchise name with yearly revenues over $3 billion that is currently priced at $70 million! Not to mention, the largest common shareholder is a highly reputable activist investor who has proven to do whatever it takes to create as much value as possible for his investments. We are not saying this is a sure thing, or that this is a guaranteed money maker, Borders Group (BGP) has some serious issues, they are in a flagging industry, and are consistently losing their customer base to newer competitors and industry trends. They have lagged in keeping up with industry innovation/changes and have had declining revenues for the last 3 years. They have had management turnover and have been struggling to turn the business around. Many will argue that the company has lost its touch and is well on its way to bankruptcy. As an investor you must know what you are walking into and be prepared to stomach the large price swings that will happen when there is limited knowledge available to market participants. In our view, we believe Borders Group (BGP) provides a supreme risk/reward scenario for investors with a long term time horizon.
Disclosure: Long BGP