Tuesday, 8 December 2015

Buy today, Barnes and Noble Education, BNED, 150 sh's b/ween $9.24 and $9.6

A quick multi-faceted post:

First, the chart:














The stock got absolutely demolished today all while my favourite clown stock almost made a new 52 week high (again):














So what happened?

The company missed expectations and lowered forward guidance, and for this, the stock dropped close to 30%.

Here's the release from the 8K:


















I think there are a few factors going on here influencing participant response:


  1. BNED has a total market cap of about $420M+.  It's too small to matter to most institutional participants
  2. It's a recent spin-off from Barnes & Noble Inc., which itself is probably too small to matter to most institutional participants, and as we're now into tax loss selling season, why not get all the unwanted junk off everyone's books?
  3. The company offered disappointing guidance - flat to -2% growth in sales
  4. Participants are trigger happy.  They'd rather sell first and reallocate the proceeds into Amazon about to break it's old 52 week high than do the work to be able to distinguish between BKS and BNED

Here's what I see (maybe I'm missing something huge here, it's entirely possible):






  1. Cash on hand of $214M (vs. mkt cap of $420+M)
  2. No debt
  3. Inventories turn - these are university books!


I ran some preliminary analytics, not based on estimates of free cash flow, but based on known cash flows.

Per Barrons, October 24:







Take Yuzu cash flows of $26M + annualized non-cash depreciation/amortization of say, $50M:

At 12% Re = $76M / .12 = $633M

At 15% Re = $76M / .15 = $506M


In both cases, no perpetual growth and highest possible Re's result in potential valuation ranges between 20% and 53% higher than current market cap (before adjusting for excess cash).

Concluding Thoughts

I need to revisit my thesis to see if I've missed anything huge here as the idea seems compelling.  Based on the above, it appears as if there is a potential margin of safety here.













2 comments:

  1. Thanks for sharing your recent buys. BNED is a name I have not come across before.

    ReplyDelete
  2. Thanks for commenting Keith. We'll see how it goes. So far, m'eh.

    ReplyDelete