Copied from my post on YAHOO!:
>>I spoke with Harold Sachs (FM Treasurer) today, and asked him if he could supply any insight into the slide in FM stock. While no company exec can really comment on the price of their stock, he said that they were also very frustrated over the recent slide in FM. There is no news that would account for any negative change in opinion in the company; if anything their outlook has only been growing more positive. He reminded me that they had just released record earnings, record sales, a re-payment and re-financing of debt at favorable interest rates, and a stock buyback program.
They are on track with their expansion plan of 100 stores by the end of this fiscal year, and plan to continue building another 115 stores for the 1999 fiscal year. This expansion is being financed internally with cash from operations, and will not add further to their long-term debt. However, he did say that he didn't think they would be paying down any more long-term debt in the near future. So they will remain more highly-leveraged than most of their peers, and I'm sure this is a negative that investors will focus on. However, their long-term debt picture has only improved since their recent high of $21, so I tend to believe it is more a case of reduced expectations for sales and revenue growth.
Their marketing plan is still very successful, as evidenced by the recent quarterly results. He said that this recent downturn in share price, though disappointing, is being viewed by management as an irresistable opportunity to buy back some of their own shares instead of using their cash elsewhere or paying down more debt. They have begun to buy back shares, BTW.
I asked Mr. Sachs if he felt this situation was mostly a case of "all the good news is out", since sales and revenues have recovered, they have received their cash settlement and ended their lawsuit with Vons (and its uncertainty), paid down a good chunk of debt and refinanced the rest at more favorable rates. While he could only express his personal opinion, he felt that this was a reasonable explanation, since FM is no longer as appealing to those institutional investors that bought it as a turnaround play for $4/share, and now FM has to attract more of the growth-oriented investors. They are about 80% institutional owned.
I thought I was pretty much done with the majority of my FM holdings when I sold most of it at the $19 level, since I also got in it a few years ago for the turnaround play and did very well. I really didn't plan on being a longer term investor. But this recent dip doesn't make any sense to me either, and I can only conclude that it is an undervalued opportunity again, so I'm back in a big way. Whenever I've added on dips, and there have been some steep ones (although not as steep as this latest) over the last few years, I've done very well, and I expect to do so again. This is a solid company that has a great business plan that is doing well in a competitive market, IMO. Although it's frustrating to be in FM right now, with all the higher risk, high PE stocks still out there in this bull market, I feel a lot better holding a big board stock with a PE this low, a proven track record and good prospects for the future.
As always, do your own research, treat your fellow posters with respect as you would wish for yourself, and may all your investments be winners if not today, than tomorrow,
D. Kuspa<< |
