Mike, <<This past quarter operating cash flow: $4.698 million Net income this past quarter: $10.426 million ? Really, one must think about that. And then think about the market cap at $650 million>>
Do you imply it is an expensive stock? Compare to which one?
Your were using a quarterly number for net income. As of today:
Market share: 600.3. million
Net income 38,953 million for 99
Net cash flow 17.6 million
Thus
P/E for 99 = 15.4
Even you discard anything in the net income only to include operating cash flow (which is questionable) it is still only: 34.1
99 EPS 35%
99 net income growth rate 46%
99 operating cash flow growth rate for 99 77%
EPS for past 5 years 49.27%
EPS projected for next 5 years 30%
(Data from investor.msn.com)
<<This stock isn't easy to figure out. >>
More details about advanced commission and how the company makes money:
boards.fool.com
messages.yahoo.com
boards.fool.com
Feel free to refute them if you like and be specific.
From the one of the links above,
Regarding the commission advances that cannot be totally recovered:
"But what about the OTHER half, the half the associate keeps?....
The amount corresponding to halves the associates keep amounts to quite a chunk of change?over $9 million in 1998, as you can easily calculate yourself from the retention rates Pre-Paid Legal quotes."
Understandably you have problems with this.
Another way to look at it, as long as the commission advances keep generating new memberships, this is a good and valid investment into their exact business, as long as the they can be recovered and gain some more through increasing new memberships, which they have been doing successfully.
If the prospect of their business is certain, I don't think it is that different from what Warren Buffett, your hero and mine, does with is insurance "float", except instead of investing in associates to recruit more members thus making more money, he invest in other stocks. And PPD doesn't seem to have Mr. Buffett's problem of finding cheap investment at the current highly valued market. (From one of the links above, they advance $62.25 3-year commission for a $300 per year membership. Of course cancellations mean they will a lot make less $300x3 - $62.25 = $837.75 gross per $62.23 cost over 3 years and I cannot confirm this these numbers, but they are still very profitable so far. )
Besides, they can always change their commission advance structure and terms, the amount advanced or even change their sales model once their market is well established. So far their current model appears to be very attractive for signing up the associates and a very cost effective way to expand and create a relative new market and new demand at the moment.
Another curious argument you have is that PPD will not do well if the economy goes back. But unless you can give me your logic leading to your conclusion, I can argue the other way: aren't those who signed up for a prepaid legal service because they need it and because it is cheaper than hiring their own lawyers? Wouldn't they more likely choose to pay less for the same services in a bad economy? Also wouldn't a restaurant owner be still worried of being sued by his customers either by the real risk of food poisoning or by some one who needs money even more badly in a bad economy?
For the long term, the final concern should be how PPD's business prospect is. Of course you and I may disagree. Yet we may agree on one thing, it is costly to be wrong, and I might add, especially when you short a business that is doing pretty well and is sold quite cheaply. Of course I may be wrong too.
From this link: boards.fool.com
Article in Daily Oklahoman on 2-10-00 stated that decrease in cash flow was result of 41% more memberships in the third quarter. New memberships cause cash flow to decrease because commissions are advanced.
Shawn |
