It looks like the company’s efforts to sell the Titanic artifacts are going poorly. However, given the drop in share price and $96M market cap I think that it is prudent to cover.
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stocks
Crocs (CROX): A wonderful company at a fair price
Crocs has very high returns on capital (~31%), is growing, and is trading at a P/E of around 11.98 (or 12.45 based on my adjustments). They bought back shares in the past two quarters.
Market makers, exchanges, and brokerages (KCG, IBKR, etc.)
Here’s how the market making business generally works:
Market makers pay exchanges money in return of special trading advantages over everybody else. Then they use these special advantages to fleece the exchange’s other customers (mostly institutional clients).
Retail brokerages can route their clients’ orders to an exchange, to an off-market venue, or to their own market making division. Retail investors still get fleeced… just not on an exchange. Knight Capital Group (KCG) was one of the pioneers in fleecing retail investors. They would buy order flow from companies such as Etrade and use the information to gain an edge.
TSLA, GMCR: Short covering time :(
My original reasoning on both Tesla and Green Mountain Coffee Roasters is probably wrong so I will be looking to cover both. Both companies may morph into rapidly growing growth stocks and I don’t want to be short that type of stock.
Tracking John Malone (Part 4) – Live Nation (LYV)
Liberty Media continues to buy shares of LYV on the open market. I don’t see crazy undervaluation at LYV, though there are a few things about the company that stand out to me.
- The accounting is misleading. Live Nation has lots of non-cash depreciation and amortization charges that deflate earnings. Its stated depreciation is excessive. Its true earnings might be somewhere around $120-150M/year. This suggests an adjusted P/E ratio of around 16-20 (at $12.69/share).
- This company is leveraged. If you account for the debt, its valuation seems a little rich.
- Live Nation seems to be a bet on innovation increasing its earnings.
Retail and reversion to the mean
In investing, some people often make the argument that the profitability of a company will move away from the extremes towards the average of its (public) peers. I see it often on valueinvestorsclub.com. For example, this writeup on Aeropostale argues that Aeropostale’s profitability should trend back towards its past. I think that this is a dangerous and flawed argument.
Lululemon: one of the greatest retailers of all time?
Lululemon has pre-tax returns on capital (well) above 70%. This is pretty insane. Imagine you could invest in bonds that yielded 70%/year- you would become filthy rich pretty quickly.
