Kevin and dako,
Thanks for responses. Your comments overlap, so I reply to Kevin's post.
FRANK SAID:
(in other words, GRIN's projected year-end PE, price/rev and price/book are all
lower than the average stock in 'Toys & Games' sector)
KEVIN SAID:
Could this possibly be because they are not a toy manufacturer like Hasbro or Mattel, nor do
they run a single store, much less the thousands of a Toys 'R' Us, but in fact are an obscure
Canadian distributor with neither the high profile nor the margins of the better-known names
in the sector?
FRANK SAID:
GRIN has been a toy manufacturer since they acquired the US business, ARK on
1/1/99.
TOY was not included in the 23 stocks I obtained for the 'Toys & Games' sector in the
CBS stock screener (TOY are under 'specialty retail - toy stores'). The 23 companies
appeared to be primarily toy manufacturers and/or distributors (Hasbro, Topps etc).
Obscure? If you mean that GRIN's financial ratios (and therefore price) are low,
partly because of their obscurity then I agree.
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FRANK SAID:
Based on management's growth expectations, GRIN 'fair' price would be $67
KEVIN SAID:
Are those long-term and sustainable growth expectations, or just a one-time increase
due to the landing of a sizeable contract of short-term value?
FRANK SAID:
A contract = growth?? Definitely not !!
Furby = growth? No.
Pokemon = growth? Nope. (Though indirectly, yes - whatever your opinions
on the August run-up, the reality is that the value of GRIN was increased
not only by the large cash infusion from the subsequent option exercise but,
more importantly, this US cash significantly reduced their currency risk
factor and I have previously estimated that risk factor as a discount
of around 50% applied to GRIN's pricing).
You are right to point-out that GRIN should only be granted a multiple
corresponding to 100% growth, when this growth is clearly beginning to
happen and can continue. At the moment, the market is pricing GRIN, based
on its performance of the past year, plus the above corrections for the cash,
in other words, treating it as a value stock rather than a candidate for growth.
Will 100% growth be sustainable? I think it will be much easier for a teeny, tiny
company like GRIN to sustain 100% growth than some of the multi-billion dollar
'juggernauts' that the market is presently gracing with multiples corresponding
to 100% growth and greater.
(BTW I should really say management's 'aim', rather than 'expectation', is
100% growth)
Always FWIW,
Frank McV |
