Trilobyte,
>Lurkers: appear!
I've been here before... and still do hold a position.
Anyway -- re: "After all, you don't replace these exercise machines every 6 months once you've bought one." I'm not sure that they're even close to reaching saturation levels yet. After all, I don't think that Bowflex has sold a fraction of companies like Soloflex or Nordic Track. In addition, the level of marketing hasn't reached many markets yet.
I think the increased interest in the stock may be in light of the increased marketing and the latest delightful numbers.
I wonder though how sustainable the growth is. It would seem that the marketing cycle appears once every couple of years, and more often if you offer more than one product line (such is the case as NordicFlex and Soloflex), you can do more ad campaigns. This business is after all a pretty tough business -- I suspect that the NordicFlex was a flop since I haven't seen any commercials lately and that was even after CML replaced that other product (I can't think of the name off the top of my head).
However I think a positive thing going for the company maybe that most of the manufacture is elsewhere -- I was trying to find it through their annual report but it's not there. I thought that for some reason that much of the manufacture (they only do subassembly in US) was from Asia -- and given their currency troubles, Bowflex may find that it is cheaper to produce their goods.
An area that I find troubling is that they seem to have capitalized their advertising expenses. This has inflated their numbers in the short term but those expenses will catchup with them. I would seem that the strategy that they're taking is that they will report better numbers today in anticipation of higher revenues tommorrow -- and I don't see any reason not to believe that premise. However, if for some reason, the sales do not materialize, there will be a blood bath of red ink in the following year -- and so I would suggest to be careful and be prepared to bail once it seems that there has been saturation.
And just out of curiosity -- does anyone know how they ever came up with the idea of selling an insole? It seems so far out of their field of expertise. It would seem that they bought the idea from someone in exchange for royalty payments -- which leads me to my next question -- does anyone know what type of product development strategy this company has?
Of concern as well may be their revenue recognition. Does anyone know what method they use? Since they have a financing plan for customers, increases the risk of default. If there is a downturn in the economy, there could be significantly more writeoffs for the company. They seem to already be a little aggressive in capitalizing advertising costs -- are they just as aggressive in recognizing revenue (ie when someone buys, they recognize the entire 1K+ without having received the cash)?
Quite happy with my investment, though just a few concerns,
Clement
PS If someone could ask management that would be great but I will ask if no one else is any closer... |
