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Non-Tech : Parlux (PARL) Fragrances
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To: M Goodson who wrote (168)12/13/1996 10:09:00 PM
From: Wayners   of 527
 
M Goodson,

Parlux closed at 52 week low of $3.56. Book value is $4.69. If earnings for the next year are zero, PARL is still worth $4.69. PARL would have to lose money at a 1.5% annual clip for the next 7 years to justify the $3.56 price, but PARL is estimated to make .63 per share in FY98 versus .57 per share in FY97. The price to sales ratio is .57 which makes PARL a valuable company in terms of a potential acquisition. If Lekach wants to enhance shareholder value then he should really sell either parts of the company or the whole thing. The earnings for the next 2 quarters are going to be substantially less than last year. The third quarter will be 45% lower and the fourth quarter will be 24% lower than last year because of the dilution. In FY98 there is supposed to be a 10.5% increase in earnings. Since it seems that people value companies on their latest performance, at the end of FY 98, without dilution or a sale PARL will fundamentally be worth $10.95. Throw in peoples fear and greed and you get a range in price between $2.00 and $20.00.

Technically, the Relative Strength Indicator has been going up since bottoming at an "oversold" condition when the price was at$4.25 when RSI was at an astonishingly low 25. RSI has increased steadily since then and is currently at 37.50 which does not indicate an "oversold" condition. The book value has failed to keep a ceiling under the price which tells me that people are either discounting inventory or they are factoring in a 1:2 dilution which would issue all of the remaining authorized shares. A 1:2 further dilution would bring the new book value to $2.30 which would provide the new ceiling. I think a price like this in the near term would bring the RSI back into an "oversold" condition and thus attract buyers. I think that PARL will recover on its own by mid FY98 a full year from now, but after basically a 1:2 dilution worse case, PARL would fundamentally be worth $5.48 a year from now and trade between $2.00 and $10.00 during that span. If PARL was sold tomorrow it would suddenly be worth $10.39 assuming the buyers factored in a 10% growth rate. At a 5% growth rate, PARL would fetch $7.54. I want Lekach to sell as soon as possible.

Wayne
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