Comments on: A Glance At Sharper Image

By: trading for a living

trading for a living — Sun, 14 Mar 2010 04:46:16 +0000

I really like this blog post, it has some great info. Thank you and keep up good work.

By: Amit D.

Amit D. — Wed, 20 Aug 2008 12:51:41 +0000

Hi Joe, I have another question! (as with others, feel free to answer them or not)

This one has alot to do with your assessment that break-up value is basically the equity per share (while the business is losing value).

As a previous poster mentionned, there are obligations that MUST be payed regardless –> Leases! (which are not included in Liabilities)

I was wondering if it was a mistake on your part or if there was some rational behind your approach? I’m assuming it was rational since I can’t read your mind.

Best wishes! Hope your enjoying ur summer

By: Joe Ponzio

Joe Ponzio — Thu, 21 Feb 2008 04:03:00 +0000

I'll get a post up on this. When buying businesses below book value that are consistently losing money, you expect them to go bankrupt. That's precisely why this was a get-in-get-out play four months ago and definitely not a buy-and-hold company. In these situations, the goal is to make a quick buck on a mispriced company. The risk is that they go under before you get out. Except in the most remote cases, buying a SHRP situation is pure speculation. In this case, we expected to have a bit of time until they exhausted the $10 million credit line (untapped 4 months ago). Once it has exhausted every resource, it has no option but to declare bankruptcy. As I told Miguel33:

Great question Miguel. Every day that SHRP can't make money, its break-up value drops. Four months ago, we had a double-MOS: an untapped $10 million line of credit and a price some 50% below the then break-up value. As time goes on, your companies will change - some for better, some for worse. Like workouts, situations like SHRP need constant attention and you must be ready to react quickly. Take a look at these comments as well to understand why it was certainly not a buy-and-hold, but an opportunity that offered a great value for a quick instant.

By: BP

BP — Thu, 21 Feb 2008 02:49:05 +0000

Curious to see what your post mortem on this post would be.

Thanks

By: Joe Ponzio

Joe Ponzio — Tue, 19 Feb 2008 08:24:02 +0000

Great question Miguel. Every day that SHRP can’t make money, its break-up value drops. The best way to calculate break-up is to figure out a conservative “fire-sale” value for the assets and then subtract the liabilities (at 100%).

A great topic for a future post!

By: miguel33

miguel33 — Sun, 17 Feb 2008 03:56:26 +0000

Now is trading @ $1.60, so I thought I’d revive this discussion – how do you value a bussiness’s break-up value. This is a timely subject, given there are lots of companies trading 10x lower than they were a few weeks ago…

By: gotta look sharp

gotta look sharp — Tue, 06 Nov 2007 10:54:26 +0000

Anyone who owns or who is looking at SHRP may want to check out the 8-K filed today with the SEC. SHRP has drawn down $10M on a credit facility with Wells Fargo. When the loan agreement was initially signed back in May, the total amount of the facility was supposed to be $20M, $10M immediately available and $10M available upon syndication of the loan (syndication means Wells Fargo convinces other banks to make the loan jointly with them). In August, Wells Fargo announced that they had not been able to syndicate the loan and that they were extending the expiration date to get more time to try to syndicate it. That expiration date was yesterday. Today, Wells once again extended the expiration date until Jan 15. So let’s put this into perspective: an enormous financial institution is: 1) unwilling to make a tiny $10M loan to SHRP unless they can get other banks to share the risk, and 2) unable to convince other banks to share that risk.

Remember that when push comes to shove, Wells Fargo has the most senior claim on SHRP’s assets. They are well ahead of stockholders, as stockholders are always the last in line. If the guy who is first in line is refusing to extend credit because there’s a significant risk he won’t be paid back, why on earth would you want to be last in line, well behind where the bank is? If anyone on this board owns SHRP, ask yourself that question.

By: Joe Ponzio

Joe Ponzio — Fri, 02 Nov 2007 04:33:54 +0000

Everyone has great points here. Break-ups are hard to value and “arbitrage”. You need to be confident in your analysis, and then invest in opportunities with which you are comfortable.

Gotta Look Sharp sees no value in Sharper Image and can quickly move on. Personally, I saw it a bit different and felt good about buying at $1.80 for a quick return.

If you aren’t sure, skip it! There’s plenty of opportunities out there!

By: Dave

Dave — Wed, 31 Oct 2007 06:59:50 +0000

I would like to see this type of evaluation done for a real estate builder Standard Pacific SFP. Right now the market cap is 360 million and the Share Holder Equity is

1,764,370 (According to yahoo). So here is a stock that fits the classic Graham model, trading at less than 66% of it’s value. So, the question is, will it stop losing money and rebound?

I guess that’s where Value Investing’s rubber hits the road. One has to completely understand a business in order to make the call if this is just a business cycle drop (and that it will come back) or if it is a case where “Turn arounds seldom turn”.

By: Fred A.

Fred A. — Tue, 30 Oct 2007 10:28:07 +0000

What a truly wonderful website you have created, Joe. It is refreshing to have sharp, bright minds debate valuation from different valuation approaches and perspectives. We all win from this forum and gain an opportunity to learn. So, Mr. Sharp and Joe….keep it up!