Have you always wanted to be rich? Stay away from
surf co shares says Australian newspaper.
It was in the middle of last year, and I
might’ve been under the spell of share traders and even a little
high when I wrote it, that I advised BeachGrit readers
to buy Billabong shares, now.
What was once a $A16 stock was selling for around sixty-cents.
My rationale was this:
“Billabong have halved the number of retail stores and sold off
a few of their biz’s, reducing debt, but, tellingly, a couple of
hard-nosed US private-equity companies have bought hard into
Billabong. And the CEO is Neil Fiske, who was instrumental in
driving the fortunes of the king of US retail Les Wexner, turning
Victoria’s Secret and A & F into the dirtiest of money
spinners. On the creative side, Billabong has hired Roxy’s
head designer to help drive Billabong gals, RVCA is starting to
soar and Tiger Lily is still an unfulfilled buy.”
Did you buy?
If you were to type “Billabong Share Price” into your browser
today you might be astonished to learn they’re now a bullish
buck-fifty. It ain’t quite so simple. A shareholder vote last
November approved the consolidation of shares at the rate of one
for every five owned.
Which means they should be worth three bucks, yeah? Ah, a
little under a buck and and half.
Oowee, sure do hope you didn’t listen to your financially
illiterate pal DR.
Anyway, The Sydney Morning Herald isn’t quite so
taken by surf company stocks. In his piece, SurfStitch and the less than swell history of
surfing stocks (don’t you love how a newspaper is
incapable of running a story about surfing without a flotilla of
puns?), John McDuling writes:
“Australians love their surfing. But Australian investors have
an uneasy relationship with surf-related stocks. Sure, shares
in ASX-listed SurfStitch were
up sharply on Thursday after its chief executive resigned and
said he was in discussions with buyout firms to take the firm
private. But there is quite a bit more to this story.
“SurfStitch, ostensibly an online retailer of surf products,
floated less than two years ago at $1. The company was a bit of a
market darling, with investors drawn to its content-driven business
model, which made it more than just an online retailer of surf
products.
“In November, with its shares up strongly since the float, the
company raised $50 million for growth by selling shares to
institutions at $2. The stock has traded lower ever since, but
took a huge hit in the past month after the company backed away
from its earnings guidance, saying it wanted flexibility to invest
more in content. At the time, Morgan Stanley, which is
positive on the stock, said ‘dropping guidance is rarely a good
sign, particularly when it occurs three months after raising
equity.
“If dropping guidance is not a good sign, then a subsequent
resignation and looming bid by the CEO, when the stock is well
below the level at which it recently raised equity is . . .
interesting.”
Let’s read about Billabong and Quiksilver.
“In 2007, its (Billabong’s) market value was about $4 billion.
Today it is worth $327 million.Or how about Quiksilver?
“By the early 2000s
it was generating $US1 billion in annual revenue, but a string
of disastrous acquisitions brought it crashing back to earth, and
last year it
filed for bankruptcy, after losing $US309 million. Is
there something about the mentality of Australian surfing
entrepreneurs that makes them poorly suited to the
stockmarket? I don’t have a good answer to that, but it does
seem that it’s a good idea to steer clear of surf stocks if you
want to avoid a wipeout.”
Who needs a financial wipeout? Or a portfolio nose-dive? Or a
choppy financial outlook?
Or…etc… etc…
