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GHOUL TAKE -- ONE GHOUL'S OPINION* by Stephen Barnes (MF Yon)
CURATIVE HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CURE)") else Response.Write("(Nasdaq: CURE)") end if %> What could be more scary than an open wound that refuses to heal? CURE is the only national company specializing in the treatment of chronic wounds. Chronic wounds affect 3 to 5 million Americans and are common among people with diabetes, venous insufficiency (a circulatory disorder) and people who are immobilized. The typical CURE patient has had a non-healing, open wound for 12 months prior to entering a CURE program.
The core business for CURE is its 90 hospital-based wound care centers. The centers are out patient treatment facilities managed by CURE on behalf of acute care hospitals in 29 states. More recently, CURE has opened four freestanding wound care facilities also now has five inpatient facilities in sub-acute settings. Finally, CURE produces Procuren, a proprietary healing agent using growth factors captured from the patient's own blood.
The compelling rationale for the Curative Wound Care program is simple: it costs less than conventional treatment and has been demonstrated to be more effective and it generates incremental patient inflows to the hospital partner, resulting in additional in-patient hospital revenues of $2 to $10 million.
I believe CURE shares are attractive for purchase for the following reasons:
<> CURE is under-followed and not fully-understood as it completes
a period of transition
To meet the consensus estimates for '96 and '97, CURE merely needs to open another 40 units or so. I think such is a layup and 50 additional units are in sight over that period. I believe CURE can grow earnings at 40%+ per year into the next millenium. My present estimate for 1997 is $1.25 before tax. Applying a tax-discounted multiple of 24 implies a one year price target of $30 or a total return of approximately 46%.
This one appears to be all treat and no trick. * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Selena Maranjian (MF Selena)
SEVENTH LEVEL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEVL)") else Response.Write("(NASDAQ: SEVL)") end if %> Welcome to a discussion of my scary stock. A glance at a graph of its past year should explain why it's so scary. After all, ten thousand bytes are worth a thousand words, right? Making it scarier still, to someone like me, is the fact that I once owned it. Imagine if I hadn't bailed out when it was still in the double-digits -- yikes!
First, a word of introduction. 7th Level develops and produces interactive entertainment-oriented software products for consumer use. How many interactive software titles does 7th Level have resting on shelves across the country? Well, unfortunately, just a few, such as: TuneLand, Monty Python's Complete Waste of Time, and Take Your Best Shot.
Why was I invested in such a company to begin with? Well, the essential answer is that I hadn't done enough homework. I was a fledgling Fool, at best, and I had relied, with much ill-founded excitement, on a few numbers and a few facts. For instance, in fiscal 1995, the company increased its sales revenues 197% over the year before. (I notice now that it managed to lose more than twice as much as in the previous year, as well.)
Revisiting the 7th Level message board (it's among the S's, in case you wonder), I see that the stock remains quite scary. It's kind of like a roller-coaster ride. Frightening bearish remark, followed by upbeat bullish note, followed by disturbing bearish note... well, you probably get the idea. Actually, since I've got the floor right now, why don't I just excerpt a bit from the folder?
BEGINNING OF MESSAGE BOARD EXCERPTS
Subj: PC DATA JULY! Sorry this will be difficult to read; PC Data info comes in a row/column format that's a little hard to reproduce here. At least the numbers are pleasant to look at! :) PC DATA JULY TOP 25 PUBLISHERS (by UNITS) JULY 1996 [GAMES CATEGORY] #22, 7th Level, 14,753, 1.0%
TOP 25 PUBLISHERS (by DOLLARS) JULY 1996 [GAMES CATEGORY] #16, 7th Level, $627,065, 1.5%
TOP 25 PUBLISHERS (by UNITS) JULY 1996 [GAMES CATEGORY] - Unit Market Share #22, 7th Level, 1.0% (this month), 60% sales growth since last month, 605% sales growth since last year.
TOP 25 PUBLISHERS (by DOLLARS) JULY 1996 [GAMES CATEGORY] - Dollar Market Share #16, 7th Level, 1.5% this month, 66% sales growth since last month, 459% sales growth since last year.
TOP SELLING GAMES (by UNITS) - JULY 1996 #13, Monty Python: Holy Grail, 7th Level, CD Win 95, 44% of Chains selling, first appeared 6/1/96, Units 10,524, Dollars $489,995, Avg $46.56, YTD Units $14,417, YTD Dollars $686,824. #95, Month Python: Complete Waste of Time, 7th Level, CD MPC, 50% of Chains selling, first appeared 10/1/94, Units 3265, Dollars $102,519, Avg $31.40, YTD Units 23,874, YTD Dollars $865,536. ============================
Subj: Re:Time to Bail **MY OPINION** 7th level has not turned a profit all year. However, they have also only released one new game all year (a Monty Python). This quarter, they will release about 5 new games (assuming they make their deadlines). It has been my experience that 7th Level games are of high graphic and sound quality. They have already released their Ace Ventura this past week, so at least one of the games made it on schedule. Their big release (in my opinion) will be Dominion. This will be a real time war game along the lines of Warcraft and Command & Conquer (both of which are highly successful and have an almost fanatical following. I posted a question regarding Dominion in the Warcraft newsgroup (where the game players discuss games), and one of the responses I got was "Everyone knows 7th Level is coming out with a kick-ass game called Dominion". From this, I assume the game will be popular when it is released. They have several other promising games scheduled to come out this quarter. If they make their Christmas deadlines, I think they should sell well, and carry them through at least 1st quarter next year. We won't know for sure until the games are released, and the response they get.
FYI, I bought in a couple of days ago at 5 1/2. I dropped a few twinkies when it fell to 4 1/2 the very next day! My guess is that the price should be around 11 when they release their 4th quarter results in January. ============================
Subj: Re:Time to Bail Problem as I see it.
First of all the number one retailer of specialty software Neostar (parent of Babbages and Software Etc.) had to file for chp. 11.
Second, all the big hitters in the industry (SIER, ERTS, GTIS, MSFT, BROD) are all announcing anywhere from 30-50 new titles between now and Christmas. This will be a huge glutton on the retailers which will create a shelf space war like we saw last year where noone wins! Am I the only one who sees this? Note the platforms (nintendo, sony, and sega) should make out great this Christmas as there are currently only 2 games for Nintendo 64 right now (mario and pilotwings) and sony and sega are providing quality control before they put their approval stamp on any third party games so you know they will be good. The PC cdrom industry has no such quality control system so it is buyer beware which is never good! =============================
Subj: Re:Time to Bail 7th Level reported a third-quarter net loss of $7.2 million (53 cents) on revenuue of $4.8 million, compared with a net loss of $3.7 million (35 cents) on revene of $2.6 million a year ago. For the quarter, the animation and computer game company posted $1 million in one-time expenses related to the completion of animation on major 1996 releases and a new cost-reduction program. ==============================
Subj: Re:Time to Bail SEVL continues to produce product on time and appears to produce a quality product at that. Also, they cover both educational as well as the high end game market. Christmas season and ability to control cost is the issue. Management has identified the cost issue as needing attention --now the question is can they maintain schedule/production and still get their cost down. Their is no question that they can make a product that sells. But, can they make it for a profit? I'm going to hold this issue and possibly add some shares if the price holds at current level or higher. You've got to keep an eye on the $2.00 per share in cash that's bank rolling their development work. $11.00 plus isn't an unreasonable target an this industry is always consolidating. I'll wait for the next quarters results before making any drastic moves. ============================== END OF MESSAGE BOARD EXCERPTS So. Is this a short? Or should one buy it, figuring it's bound to rebound? Well, according to its First Call report, five brokers have set a median 5-year growth rate for 7th Level of 30%. Not too shabby. Let's do a Fool Ratio, shall we? Wait -- we can't! There aren't any earnings, so we don't even have a P/E ratio. The company is expected to lose only $0.35 per share in 1997, compared with an expected loss of $1.51 per share in 1996. So there are signs of hope for this struggling outfit. Nevertheless, Fools should generally stay away from investing in companies which are not profitable. Why take a gamble on a company losing money when there are plenty of companies turning profits which are at least as compelling? If you want to check it out, there is a 7th Level website, and there is a Morningstar stock report on it, as well.
For me, though, I've gotten my share of scares from the stock market, and all in all, I'd just as soon not court coronaries this way. Investing Foolishly has helped me sleep better at night. So goodbye, Halloween, and bring on Thanksgiving! * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Greg Markus (MF Boring)
COPYTELE, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COPY)") else Response.Write("(NASDAQ: COPY)") end if %> Earlier this year, one participant in the Copytele folder here in Fooldom described this stock as "quite scary." That made me curious. After reading the running commentary in the (very active) folder and reviewing the company's SEC filings, I had to agree.
Copytele was incorporated in 1982 and went public a year later as a "development stage enterprise." To date, the company has burned nearly $30 million in a 14-year (and counting) quest to design and market a "multi-functional telecommunications product" called Magicom. According to the company, Magicom "would enable users to have a personal information center in a single, compact unit which integrates voice communication, digital messaging, fax (transmission and paperless reception), copier, electronic handwriting, touch sensitive keyboard screen, data storage and transmission, and computer interfacing."
Which is to say, a Newton. Or perhaps one of those Simons that IBM and Bell South offered a few years back -- and which you can still find at close-out sales for around 80% off their original $2000 price tag.
The young lions heading up Copytele are Chairman and CEO Denis Krusos, age 69, and President Frank DiSanto, 72. Two of the other three members of the board are aged 70 and 81. Better hurry up with that Magicom.
You might wonder how a company manages to stay in business for 14 years without, to the best of my knowledge, ever attracting a single institutional sponsor or producing a single product for sale. Well, it helps that neither of the company's principal officers has accepted a penny in salary for over a decade. It helps, all right -- but not how you might think.
Instead of drawing salaries, Copytele's execs are awarded lavish stock options that they turn around and exercise on the open market, regular as clockwork and often on the heels of a press release touting some major new company "development." It's magic, all right: the execs make millions and the company's gets a fresh infusion of cash, all without the fuss and bother of a secondary offering. In another quarter or so, the algorithm is repeated.
Copytele's market capitalization is approaching a half-billion dollars -- all for a company that has never generated a nickel in sales, and possibly never will. Now *that* is scary.
Before you run out and short COPY, though, be aware that the company recently announced plans to launch "its multifeatured MAGICOM 2000 telecommunications product" at an invitation-only press conference to be followed by a "viewing" for the general public at an upcoming trade show.
Wow! They gonna show this thing at Comdex? Not exactly. Try the "PT/EXPO COMM" in Beijing, China. And when does this whole shebang start? When else? Hallowe'en. * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Rick Munarriz (MF Edible)
EINSTEIN/NOAH BAGEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENBX)") else Response.Write("(Nasdaq: ENBX)") end if %> [It's late, it's dark and a Trick or Treater Arrives at the Edible Residence]
Kid: Trick or Treat!
Edible (opening door): Wow, you're the third Zip Drive I've seen tonight.
Kid: My big brother is a Jaz.
Edible: Nice, what have you gotten so far? I see the Gardners are giving out Quarterdeck this year.
Kid: Yep, overpriced tricks in my bag this year.
Edible: Well, here, have some Einstein-Noah's Bagels.
Kid: Finally, a food stock, I'm famished.
Edible: They are the country's fourth largest bagel company.
Kid: Bagels are cool.
Edible: Not this cool. The company is closing in on a billion dollar market cap.
Kid: I can only imagine what the Big Three are selling for?
Edible: Well, Quality Dining bought out Bruegger's, the largest chain, for stock that is worth about $120 million today. BAB Holdings and Manhattan Bagels, the silver and bronze medalist, have market caps of less than $100 million.
Kid: So ENBX has a perceived market value of three times the Big Three combined. But isn't ENBX growing like gangbusters?
Edible: Yes, they all are. Then we have competition from the likes of Dunkin Donuts and Tim Horton's as they introduce their own bagel lines. No good trend goes uncopied.
Kid: Got any Snickers? Good chocolate makes good neighbors.
Edible: So they tell me.
Kid: But this is way too easy. Why gravity in suspension?
Edible: Well, Einstein Brothers and Noah's Bagels are class acts. While most bagel chains are lucky to sell half a million per unit, ENBX, like Bruegger's, grosses closer to $800,000 per store. The unit economics trickle on down. Boston Chicken is also a major shareholder so people are chasing management. There is nothing wrong with ENBX except....
Kid: Except the price.
Edible: Exactly. * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Joe Newell (MF Health)
NATIONAL HEALTH ENHANCEMENT SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NHES)") else Response.Write("(Nasdaq: NHES)") end if %> Fiscal year-end: January FY '96 sales: $16.891 million FY '96 profit: $560,000 FY '96 EPS: $0.15 FY '96 P/E: 52 Halloween is one of my favorite holidays. In honor of the occasion, I've written up my thoughts on the scariest stock I know in the healthcare field. And, believe me, there's good reason to be frightened by this one! My candidate for scary stock this holiday is National Health Enhancement Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NHES)") else Response.Write("(Nasdaq: NHES)") end if %>. NHES is a player in one of healthcare's sexier areas known as Personal Health Management, or PHM. Unfortunately, they seem to have badly misjudged the future of that industry.
The PHM industry is growing exponentially these days. That's because it offers the potential for substantial cost savings to those stressed-out managed care folks. The centerpiece of the PHM industry is Nurse Triage (a.k.a. Demand Management). Essentially, a company sets up a bunch of computers with sophisticated software and mans them with registered nurses, or similar healthcare professionals. These folks take calls from those who are injured or feeling ill, helping them to understand their ailments and the appropriate methods to treat each condition based on the algorithms built into the software, which guide the nurse and "patient" through a question and answer session.
The upshot is that far fewer unnecessary emergency room admissions are needed. Self-care is far less expensive, and frankly, many folks just want to "have their hand held" a bit by someone who knows about health care. As you might have guessed, the HMOs created this business as a way to reduce costs and make the patient feel more access to quick care. But, as the HMOs have already begun to shift the cost control issues onto care providers by paying capitated rates, the buyer of these services has become the self-insured employers and physician networks, who want to improve their cost control. They rush out and hire a Nurse Triage service to do everything from the aforementioned screening to office visit scheduling.
The big players in the market are Access Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACCS)") else Response.Write("(Nasdaq: ACCS)") end if %> and United Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNH)") else Response.Write("(NYSE: UNH)") end if %>. They've grown these operations tremendously and industry analysts see continued growth ahead for the providers of these services. Now, you're probably wondering just where the "trick" is amongst all of the "treats" I've just detailed. Well, that's the interesting part. From the beginning, NHES made the decision to write the software that supports these services, selling it to companies like UNH, who then provide the actual nurse triage coverage. And, for a while, it was working great. There was sweet honey in the nurse triage jar, so a bunch of bees rushed in to buy the NHES software, fully convinced they'd make a fortune selling this service. And, they've done well, but the number of nurse triage providers has grown far faster than the number of lives covered. In short, the supply is already there.
After earning $623,000 on $11.2 million in sales in FY '94, the company lost just over $800,000 in FY '95 on $13.4 million. In their most recent year, which ended in January, 1996, NHES returned to profitability of $560,000 as sales blossomed to $16.9 million. So far, so good. But already, based on what I am hearing, NHES is believed to be selling its software into a satiated market. The company has posted a combined loss of $0.09 per share in the first 6 months of FY '97, citing delays in closing sales. There are rampant rumors that NHES has growing cash flow constraints due to its inability to get companies to sign on the bottom line for their software. The current ratio at January 31 was a sickly 0.85 to 1. In fact, I believe the company will need to float a fair chunk of stock within the next couple of months to keep things going. Needless to say, Wall Streeters hate dilution.
Worse yet, NHES is sending mixed signals to its potential customers. On one hand, they maintain their own call center that handles calls for those companies that have bought their software, but aren't large enough to staff their own phones in off hours like nights and weekends. In these cases, the calls roll into the NHES operation at Phoenix, and the caller never even realizes it. And, NHES has assured potential software buyers that it will not compete with them. But, with cash flow so poor, I expect that NHES will jettison its software operation in favor of providing its own nurse triage service. It's already been leaking news of such a strategy change to pending customers in an effort to close their business in the October 31st quarter. They seem to be hoping to beef up Q3 numbers in advance of the announcement of a dilutive secondary stock offering.
Either way, NHES has a business model that is now tapped out. The capitulation will come when they announce more shares or a total business strategy shift. I think the company will be lucky to make it, frankly. They've ridden the software horse as far as it'll go, and entering the service side of nurse triage now is a gamble on a highly competitive, virtually-commoditizing business. It's enough to give a Ghoul nightmares. * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Jeff Robinson (MF Swagman)
NATIONAL TECHTEAM, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TEAM)") else Response.Write("(Nasdaq: TEAM)") end if %> TEAM, should I short thee? Let me count the whys. Just look at this fine stock. IBD rankings of 95/99. Great corporate growth. It would be lunacy to short it, wouldn't it?
Hmm, well, maybe, but I also think it will be profitable. Let's start with the Fool ratio. As of Friday's close, TEAM's ask price was 29.625. Trailing earnings are $0.32. This yields a P/E of 92.6. Next year's earnings, according to First Call, are slated to be $0.51. They just reported earnings for the third quarter, so the end of the next fiscal year is 5 quarters away, or 1.25 years. So, to compute the growth rate, we divide 0.51 by 0.32 and take the 1.25 root of the quotient. Doing so yields a growth rate of 45%. Thus, the Fool ratio is 92.6/45 or 2. Yikes! Looks pretty scary so far, but there's more.
The company just completed a secondary offering of 3 million shares. That's about a 30% increase from the 11+ million shares currently outstanding. While this does provide cash for expanding operations, it will also dilute earnings henceforth.
Let's take a peek at the recent numbers. Gross margins are decreasing. In 1993, the gross margin was 8.2. It dropped to 6.5 in 1994 and in 1995 was 5.7. If this progression continues, it could be trouble. How about earnings per share? There's no notable progression here and earnings growth certainly isn't explosive. Take a look: 3Q 1994 0.06 4Q 1994 0.03 1Q 1995 0.05 2Q 1995 0.07 3Q 1995 0.03 4Q 1995 0.07 1Q 1996 0.08 2Q 1996 0.09 3Q 1996 0.08 I'll buy that the company is growing. I'm just not convinced that it's growing fast enough to sport a price that's 58x next year's best EPS estimate. Time will tell, I'm sure, but for now, TEAM sports a scary multiple in this Ghoul's eyes. If (and that's a big if, I'll admit) it falls to the current fair price of about 14 3/4, I'll make a pretty penny. Or six. }:-> [This article is not a recommendation. It is solely designed to convey my thoughts on TEAM. Decide for yourselves if you wish to short it. Only you can make that decision.] * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Paul Larson (MF Parlay)
STRATOSPHERE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOWV)") else Response.Write("(Nasdaq: TOWV)") end if %> What could be more mortifying than riding on a roller coaster on top of a 1050-foot free standing tower over the Las Vegas strip? How about owning stock in the Stratosphere Corporation?
Stratosphere's stock <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TOWV)") else Response.Write("(NASDAQ: TOWV)") end if %> has been a real nightmare to own the past few months... and the night has just begun. Stratosphere operates one casino resort on the far north end of the infamous Las Vegas strip. The tower was started by the well-known, though not well-known for good things, Bob Stupak. The tower sits on the same property that once housed, in this Fool's opinion, the cheesiest casino in Vegas -- Vegas World. Stratosphere in its current incarnation consists of the tallest observation tower in the United States, a 100,000 square foot casino, and several hundred hotel rooms. The stock traded at a heady $14 near the resort's extravagant grand opening in April and is currently trading below $1 1/2.
The problem with Stratosphere was that they opened the resort before it was completely finished last April. There are not many people that will visit a Vegas resort with a poor food selection and no pool in the middle of summer. While the original plans called for a much larger resort, the company ran out of cash well before the unit was complete. The majority shareholder, Grand Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %>, has been infusing cash, but the cash Grand has committed will not be nearly enough to finish the resort as planned.
The resort as it is currently operating is losing money hand over fist. For the quarter ended September 30, the company lost $0.45 per share versus an analyst expectation of a loss of $0.21. This was on top of a $0.19 loss in the previous quarter. The worst part is that the company is not only posting negative earnings, but their cash flow has actually been in the red. Having negative cash flow is very rare for a casino company. Casinos require a large up-front expenditure to build and then normally have large positive operating cash flows. If having negative cash flow wasn't enough, the company desperately needs capital to finish construction of the unit. Phase II of construction was halted due to an anticipated cash shortfall. Most analysts feel the company will have a hard time attaining profitability without the addition of more amenities.
If seeing both earnings and cash flow in the red isn't scary enough, the impending bankruptcy should sure boil some blood. The company just last week said that filing for chapter 11 was "highly likely" since they were not planning on making the interest payments due November 15 on their bonds. The company has approximately $230 million in long term debt in the form of bonds and another $50 million in debt to their affiliate Grand Casinos. Grand Casinos owns approximately 42% of the current stock equity in the company and has a commitment to infuse another $60 million over three years if cash flows fall below $50 million a year. This $60 million from Grand will be turned directly into Stratosphere stock at below market values. What does this mean to the current shareholders of Stratosphere? Massive dilution.
The company currently has 58.3 million shares outstanding that were trading at this report's writing at $1 11/16. This gives Stratosphere a market capitalization of $98.5 million. If you assume in the impending bankruptcy that the $230 million in bonds and $50 million in loans to Grand Casinos are turned to equity at current market prices, this would give current shareholders about one quarter of the theoretical post-bankruptcy corporation. Even when the current debt holders are taken care of, the company still needs at least another $100 million to complete the resort as planned. Pick your poison; this will either mean further dilution or more debt.
There may be a glimmer of hope for the company. A new marketing plan trumping up much better player odds started at the beginning of the quarter has actually increased the daily casino revenues 68% over the previous quarter. Expenses have surely also gone up, but this is a massive improvement. While the cash flows are most likely positive with the new marketing plan, it will not be nearly enough to help with the capital expenditures. In addition, it is highly unlikely that the company will be profitable with its current debt position. Another improvement worth noting is that the company has severed almost all ties to Bob Stupak (who has a notorious reputation) and has put Lyle Berman at the helm.
Nevertheless, the company has big problems. While it is hard to imagine the stock going any lower, it is certainly a possibility. Current stockholders can't be feeling too comfortable with the bondholders holding an axe over their necks. The Stratosphere may eventually turn a profit, but it is going to be one scary ride between here and there. * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 10/30/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Randy Befumo (MF Templar)
CDW COMPUTER CENTERS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDWC)") else Response.Write("(Nasdaq: CDWC)") end if %>
GLOBAL DIRECTMAIL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %> Personal computer catalog and direct sellers CDW COMPUTER CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDWC)") else Response.Write("(NASDAQ: CDWC)") end if %> and GLOBAL DIRECTMAIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %> scare the pants off of me. The two companies compete with MICRO WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MWHS)") else Response.Write("(NASDAQ: MWHS)") end if %> and MULTIPLE ZONES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MZON)") else Response.Write("(NASDAQ: MZON)") end if %> in the fast-growing computer catalog business, besieging mailboxes across the country with piles of catalogs with names like the MacZone, Tiger Direct or CDW Centers. Catering to individuals, small businesses, government offices and individual educational institutions these companies have simplified the PC buying process for consumers by putting together all their possible needs in one fat, regularly updated offering.
The problem is that all of these companies run with operating margins in the single digit range. Global DirectMail has the highest operating margin of the group, coming in with a 7.45% last quarter, following by CDW Computer (6.36%), Multiple Zones (4.65%) and Micro Warehouse (3.01%). Although not as anemic as the value-added resellers (which have operating margins in the one percent range), the competition here is fierce and the industry pace is frenetic. Revenue growth is high and the companies are controlling their cost structures well, driving profit growth as margins increase. However, with virtually no moat around their core businesses and the growth of Internet buying, CDW Computer and Global Directmail may have hit their valuation peaks.
CDW Computer and Global Directmail both currently trade at a uniform 31 times forward earnings with forward growth estimates in the 30% range. The PEG on CDW is 1.89 while Global Directmail's is 1.64, indicating that estimate-beating performance is being built into the share prices. CDW Computer has a price/sales ratio of 1.61 and an enterprise value/sales ratio of 1.53. Global Directmail has an even less attractive price/sales ratio of 1.87 and an enterprise value/sales ratio of 1.82. Given that both companies carry mid-single digit operating margins, these multiples to sales appear generous, especially considering the businesses are generating relatively low amounts of free cash flow and have little cash to spare. Tone in the peer stocks has been weak lately with Micro Warehouse getting crushed due to some accounting problems, Multiple Zones getting crunched because its core Macintosh business came in below plan last quarter and Global Directmail getting tossed and turned a little bit due to an analyst downgrade on Novermber 1st.
A more reasonable price for CDW Center would be at 25 times forward earnings and 1.25 times sales, or about $50. At the same multiple Global Directmail would trade at $36 1/2, or a 1.4 enterprise value/sales ratio, getting an extra jolt for maintaining an operating margin one to two percent above the industry average. Potential catalysts for a downward jag is decreasing frequency and degree of earnings surprises, shift to negative sentiment about future PC growth, decreasing operating margins due to competition and high valuations relative to operating margins. The risk-reward appears best on CDWC in the high $60s and Global Directmail in the $50-plus range. * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 11/01/96 |
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GHOUL TAKE -- ONE GHOUL'S OPINION* by Jeff Fischer (MF BudFox)
CARRINGTON LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CARN)") else Response.Write("(Nasdaq: CARN)") end if %> If you have a good Halloween season it means you typically, hopefully, suffer some major bodily wounds or cause such suffering to others. This is what Halloween is all about, right? Right. What? What did you say? You don't agree? Don't argue with me! You know it's true! Silence! If you don't agree with me then hit the road, pal!
(Bud, Bud, put the ax down... )
Oh. Sorry.
Carrington Laboratories is a researched-based pharmaceutical company (read: Frankenstein related) which makes products for the dressing and management of wounds (read: hiding your victims) and other skin conditions. It also manufactures and markets nutritional supplements in the form of capsules and beverages.
Click on that there blue line up there, cowboy, and you'll get a Home Page devoted to Aloe-Vera, but also an introduction interested in selling you some of the company's goods. The self-serving nerve! Makes me just want to fly down to their labs in Texas and... and... never mind. Example of their Home Page:
You may want to check out our specials of the month, too. We offer some excellent bargains in high quality Aloe vera beverages exclusively for Internet users.
A case of 6 one-quart bottles (six-pack), Aloe Nutritional, an all natural Aloe vera beverage, $36.00 per case through March 31 or while supplies last. This is one-half our regular price! If you buy three six-packs, you get a fourth free!
But, that's not all they do. The company is currently conducting research on naturally occurring complex carbohydrates for the treatment of ulcerative colitis, cancer and other illnesses.
In all seriousness, I have no qualms with a company that is trying to improve the human condition. It's a much more noble company than the one that sells potato chips, for example. I found this stock, though, by hunching over the IBD New 52 Week Low list, much like Igor himself. Then, looking further, I found something very interesting in the press releases, which tells me this company is somewhat frightening, aside from the Aloe Vera Home Page (hey, it's a legitimate product I'm sure.)
What frightens me: On October 28th, Carrington Labs announced the completion of $6.6 million in sales of Series E preferred stock. Not much money, but cash to finance the company's clinical research programs, mainly the second phase of Phase III Pivotal trial for ulcerative colitis, which it expected to announce the results of before the end of the year.
But, in some ways, the end of the year came very quickly. On October 31st, Halloween!, three days after the Series E placement, the company announced the results of its first Phase III Pivotal trial in the ulcerative colitis. Results: no significant differences were found to support any effect. Nothing.
The company said they were not pleased. Investor's weren't either. The stock plunged a whole $9, from $21 1/2 to $12 1/2. The timing of the two events seems frightening to me, to say the least. I wouldn't be happy if I had just participated in the Series E preferred stock issue.
The company lost $1.8 million in 1995 on $24.4 million in revenues. The past five years revenues average out to be fairly flat, ranging from $15 million to $27 million per year, up and down. The company was profitable, though, but not by much, in 1991 to 1994. For fiscal year 1996 they're estimated (by one analyst) to lose 65 cents, and in 1997 to lose another 25 cents.
Happy Halloween! * A Ghoul Take represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts. Transmitted: 11/01/96 |
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