The Incredible Shrinking Industy (and how you can profit)…
- Aug 19, 2005
- admin
- Entrepreneur, Investing
AS A RULE I’M VERY SHORT AND TO THE POINT.
I believe if you have something important to say, start at the
end.
So here we go:
There’s a stock that trades on the big board.
It’s selling for roughly $14.40 pr share.
We think it’s worth $30 per share within six months.
Let me tell you why:
After years of decline, the Collectibles industry is now entering a
period of consolidation.
And any time an industry consolidates there are bound to be
big winners and there are bound to be big losers.
Winners are companies who have strong cash flow, healthy
balance sheets and are selling for a fraction of what
they’re worth.
Losers are companies that have weak cash flow, high levels
of debt and are selling for more then they’re worth.
Why is this important to you?
Because in this months issue of the monthly FallenAngelStocks
report (which was released to members on Wednesday) we highlight
a very unusual company.
It’s unusual because this company – which only does $160 million
in sales and is considered a small cap – just made an important
acquisition.
Now acquisitions by themselves normally don’t amount to much.
But in this case the smaller, acquiring company is buying a company
FIVE times its size.
And when you buy a company 5 times your size the whole world changes
overnight.
Instead of doing revenue of $160 million you’re now doing revenue of
$630 million.
Instead of brnging in $20 million per year in cash flow, you’re now
on track to bring in $70 million in cash flow.
Instead of earning $1 per share you’re now on track to earn $2.5
per share.
But that’s not what makes this situation so special.
What makes this situation so special is that the company is still
trading AS IF IT’S ONLY EARNING $1 PER SHARE.
In other words, the market hasn’t valued the company based on the
new reality of the larger-than-life acquisition.
Oh sure – every brokerage firm on the street is beginning to recommend
the stock.
And of course every arbitrage group with half a brain on their heads are
doing the same.
But since the market’s been weak all stocks have been relatively weak.
Instead of this one.
This stock has steadily moved from $13.45/share to $14.45/share in the
past 10 days.
But the stock isn’t finished moving higher.
Why?
Before the merger the company we’re talking about was on track to
earn $1 per share.
But after the merger it should earn roughly $2.50 – $3.00 per share.
And based upon it’s historical P/E of 10 the stock should be trading
in the $25 to $30 range.
We’re not the only ones who believe this.
Right now some of the biggest, smartest, most informed money on the
Street is buying stock at these exact same levels.
But you don’t have to do 6 months worth of research to find out what
we’re recommending.
We’ve already done that.
–Dylan Jovine