Re: Book value, how to invest?

Frank wrote:
"Blash" <blash1@xxxxxxxxxxx> wrote in message news:C4EF0E39.BDEB9%blash1@xxxxxxxxxxxxxx
Frank wrote on 9/11/08 5:35 PM:

Lets say a company has a book value of $10 trading at $2 on a per share
bases. If it goes under, investors still get a dime out of ever dollar,
right? Is this dime based on book value or share price?
SAY WHAT???
If they have a REAL book value of $10/sh and are trading at $2/sh, people
would be rushing in to buy the company.......Why do you think would it go
under??
THINK!!!!

Lets also say its Circuit City (CC), how would you invest this? What is the
chance for it to turn around or bought out? Another one is Crocs (CROX),
with book value a little above share value.


Look at Circuit City (CC), as I indicated above. It has a book value of $7.9 and trading at
$1.66. Nobody is rushing to buy as it tank again this morning. May go under, turn around or will be taken over by a bigger fish like Best Buys. What do you think?

It's a dead duck.

There are a limited number of retailers in that business. You know who they are. They all have the same problem -- whenever a particularly profitable niche in their business opens up, Wal-Mart grabs it and undercuts them.

So, they have survive by weaving together a set of related businesses under one roof, none of which are big enough for Wal-Mart to get interested in, and by managing their balance sheets properly. Adding Circut City to Best Buy gives Best Buy nothing, as all they'd be doing is taking on inventory, and since most CC stores are close in proximity to BB stores, they'd have a spend a year closing stores and getting out of leases and firing people, all of which carry costs.

Best Buy doesn't get interested unless they can get the CC inventory for free. So, get the CC balance sheet, find the inventory line, divide through by the shares outstanding, back a margin of safety off that, and use THAT as your entry point.

JG



.

Relevant Pages

  • Re: GW Stores Are A Boondoggle [was Re: GW sales down]
    ... but a very successful business model. ... How big are the hobby stores in your area, ... recently and added a bunch of money sucking retail outlets... ... direct effect on sales of the army in question. ...
    (rec.games.miniatures.warhammer)
  • Re: Spoiled for shopping
    ... shut up shop and apply to work for someone who can. ... business over working for someone else (sometimes even when being ... are not common to these stores. ... competitors that are higher priced. ...
    (soc.culture.thai)
  • Re: Relational model versus object model
    ... > inventory control for a retail bricks & mortar business. ... > problem solutions are inherently dynamic. ... you said it yourself: it is a data centric interface. ...
    (comp.object)