I wouldn't go so far as to call it "research", it was basically glancing through the 10-Q as I typed up the post, combined with my long-held skepticism of this particular company.
I think the main reason AN's stock has done so poorly is that they bought out the car dealers with their stock which the car dealers sold.
Selling pressure could explain the decline in the price of the stock, but if one assumes that the stock was "fairly priced" or "overpriced" at the time of buying out these dealers with stock, then that should have resulted in a growth in the per-share book value (and it probably did). Even today, if you agree with my guess that the stock is trading at a premium to its intrinsic value (though admittedly at a discount to its stated book value), then it would still make sense to sell the stock today at today's price, instead of holding it as a long term investment. Of course there are many different opinions on this, that's what makes a market! ;-)
On the other hand, AN can now buy back these shares at 1/2 to 1/3 of what they paid the dealers.
True, but in a sense the company would then be closing out an effective "short sale". One can argue endlessly about the ethics of this (whether they treated the dealers right, or whether the dealers were smart in accepting). Looking ahead, it might hinder their ability to further expansion in their traditional mode (generous use of high-powered stock).
...But cars wear out, and if folks can't buy a new car then they can buy a used car. AN sells both...
True too, but I am under the impression that AN is not necessarily a cheap or good place to buy a new or used car. They might aim to be the Wal Mart of their field, but that is quite a hard thing to accomplish. Even though people will always need new and used cars, it does not follow that they will get them from AN, nor does it follow that even if they do buy them from AN that AN will make a decent profit in the business (ROE/ROIC/ROA or whatever your favorite measure is). Some industries are just ugly, pure and simple, and even though attempts might be made to dress them up for the stock market, it always seems that their long term results are disappointing. Sometimes the smart money (car dealers?) decide that the best thing to do is to get out, avoid, and move on to a different investment entirely.
It may not go up a lot, but it's safe. If I make 10% in a week, I'd be delighted.
Of course everyone has their own opinion of what is safe and what an acceptable level of risk is. In my opinion the stock could be cut in half from where it is now, and still not offer truly compelling value. Unless they improve their business operations (profitability) or reduce their debt, I would not personally be interested in buying.
Best of luck, I hope you make your 10% in a week. I'd be delighted too, I just couldn't stomach the risk as I see it.
- Daniel |
