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?