I'm sure you appreciate all the risks involved with buying CTYS. That said, if I were buying in, I'd do it before earnings are announed, and before the whisper numbers start going around. If our theory is correct and earnings are going to be strong for the quarter, there could be a stampede. A lot of people have very short memories when they see cash flow.
There is, of course, some impact on the stock price both from the unsavory press and concerns about the industry from Mercury Finance. Both of these are real concerns. However, the direct impact on Co. sales in the UK from the bad press should not be too bad, since it is a small portion of the business and the people who get these aren't likely to read The Times. The indirect impact of the press -- that the company is shady, in a word -- is harder to assess. This gives me real pause. I have had direct dealings with people in the business, and in the telecommunications outsourcing business, and some of them are dishonest to a degree that is hard for me to fathom and generally destroys any business in the long run. I don't think this is true of Cityscape, but it is a risk that must be considered, especially in view of the recent press.
However, another part of the stock's low price is also a financial concern about increased reserve requirements and more stringent consumer-loan requirements (in the UK), which a good earnings report will quash completely. My theory is that the reserve requirement is not a problem unless and until the economy begins to tank, or we get interest rate rises. A good company can make money on these 125% LTV loans. |
