Did anyone see the new stock in the top 30 this weekend? It is FFN and is the FriendFinder Network. Now I am over 50, so I am clearly unqualified to comment on any social media stocks. But this one has had a real roller coaster ride. The stock closed at 71 cents (post a $10 IPO last spring) on January 26th. Since then it has been a triple (I assume due to the Facebook craze), which has gotten it back over $50m market cap and on our screens.I will not buy as I have had enough nano cap disasters. Only one analyst, but he/she expects earnings of $1.83 (for a $2.28 stock) in 2012. Of course the glaring issue of the $50 market cap company is their $490m of debt. That is costing them about $21m a quarter in interest (which for those math challenged out there is a very high interest rate, maybe around 17%... so it is a race to the bottom, their debt has gone from $510m to 453m at the end of quarter 3. Can they pay off debt before they get buried by interest payments? And I think the bigger issue has been they are not see the growth in revenue they had hoped for.
Now the head-scratcher is how does a company that is losing money after their debt payments qualify as a "good company at cheap prices"? Greenblatt does have an entire section on why he looks at debt (and interest and tax expense) the way he does... I may need to re-read the chapter.
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2 comments:
On a side note, is 50M still a good starting point for MFI screens? 50M was proposed for the original TLBTBTM. Since the original publication was in 2005, shouldn't the 50M be adjust for 7 years of inflation? Something around $58M - 60M?
Interesting thought. I guess I'd say two things:
1. the $50m Greenblatt used was arbitrary and he did not adjust it for inflation over his 17 years.
2. I think share volume traded is more important.
All-in-all I have found that stocks under 100m have not done well - I wrote a blog about that once.
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