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Strategies & Market Trends : Value Investing

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To: Michael Burry who started this subject	11/26/2003 7:16:25 AM
From: David	Read Replies (1) of 78667

Anyone riding the MAXS bubble? MAXS has taken quite a climb lately. These are my rambling thoughts. Several days ago there was a curious large one day surge in volume -- over 250,000 shares traded I believe. I never was sold on the business or industry that MAXS operates in. But, MAXS seems to operate well despite these drawbacks and despite a difficult economic environment over the past several years. I was cranking through a few numbers trying to determine what the real return on assets and equity might be given the large amount of cash on the balance sheet in hopes to estimate a value for the going concern. I backed out $69 million in cash (they ought to be able to live on $77 million in working capital) and $1.3 million in interest earnings and came up with $13 million in earnings from core operations over $96 million in adjusted assets (excluding the surpluss case). That results in a return on assets of about 13.5%. I adjusted the equity (removing $69 mill in cash - that would be a nice dividend!) and came up with roe of 15.6%. Glass half full analysis: we haven't really seen yet what MAXS can do with the tailwinds of economic growth behind them and, perhaps, another acquisition of the like of Jones and David. Glass half empty analysis: Management was really lucky through these difficult times; Mgt makes an acquisition misstep and blows a large portion of shareholder value; stock-option dilution continues at the rapid pace that it has in the past; The economy tanks and people stop buying shoes. Plusses: strong balance sheet; decent ROE and ROA on underlying business I ran out of time for now to estimate a range of values for the company. Hopefully the stock price will continue rising while I try to figure out what to do here.

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