OT-Similar stock....comments appreciated.
DIYH (otcbb)is an interesting speculation. They are a cleveland based home improvement retailer with 11 stores, down from 16. They are getting badly hurt by Home Depot and Lowes.
While it is hard to be optimistic regarding the long term outlook for their business, I do believe the shares are a good value as an asset play.
The shares trade for around 5/8. (Thinly traded,patience & limit orders required)
Book value is $4.76 per share with $1.61 in net current assets.
I expect continued losses for the next year at least.
I am projecting a total loss of 38 cents/share this year, (20 cents in the next 2 quarters), a loss of 21 cents/share next year (assuming sales declines moderate) and a break even performance in 2002.
While this sounds bad, the fact is depreciation runs about 35 cents per year so while I expect book value to decrease to $4.35 over the next 2 years, Net current assets will INCREASE to $2.02 per share. (excluding the impact of any store closures or share buybacks)
My argument is simply the VALUE of the assets,even in a reasonable worst case scenario far exceeds the share price.
In the past few years they closed 5 stores. They averaged a $520,000 invesntory liquidation "hit" per store and an average of $1 million per store for the equipment writedowns,lease costs & such. They offset those losses by a gain of $1.9 million of the land & building of 2 owned stores.
The OWN 3 stores outright and have land leases on 2 others so I would expect there is SOME unrealized appreciation there.
I calculate that if they were to orderly close all 11 stores and using the average loss & gain on previous closures, they would have $2.81 per share "left".
But they do NOT plan to close all 11 stores. In fact, right now they don't have plans to close any more. However, I would expect that may change going forward.
It is my understanding a number of their locations are valuable and perhaps "coveted" so I would expect that if favorable opportunities to close come up they would take advantage of them.
I have suggested a stock buyback and got the impression they would consider it...perhaps when they pay off their debt. (Hopefully fairly soon) They did buy a block back at current prices (9/16) in Nov. 98. Since then, they have signifincantly strengthened their balance sheet and insiders have been continued repeat buyers.
I figure the company could be taken private for $2+ and they would make themselves money...IF they could get a fairness opinion that low.
I have spent a lot of time with the numbers and I see very little, if any, risk in the shares. I figure its good for an annualized +40% range for 3-4 years going forward.
I do not see an immediate reason for the shares to go substantially higher but, over time, even if the business continues to die, the shares will become more valuable as they monetize a few more poor performing locations.
The public float is less than 2 million shares. It is a very thinly traded stock and would likely take time to extablish a meaningful position.
Only comparable public company is HBI which trades at higher valuations and has 88 stores. I prefer DIYH because insiders own a lot more and have been consistent buyers and Its easier to see an endgame. |
