TD: RE BFIT most timely question. I just shorted some more at 21 3/4 today, and some yesterday at 21 1/16. BFIT continues to be my largest short position. The market value of my BFIT short position is now a significant 23% of my net portfolio value! Now, this does not mean a think (There is a posibility this Pancho may even be a plain mexican crook). you should make up your own mind/trust your own research. BFIT continues to be my best short recommendation for 1998. I do not see this stock running away the way the internet stocks have for two reasons:
1. People have adopted a wait and see attitude, they now want management to show them they are turning things around. Results for the next three quarters will be critical in this regard. There is talk about increasing the now very small profit margin of about 2% (excluding, of course, the very significant debt service expense - if you throw this in they are losing and will continue to loose money) to 20%. This is an herculean task! Anyone familiar with the gym business will laugh about this goal! Management talks about alternate sources of revenue: therapy, massages, sales of sporting equipment that IMO will not play a significant role (do you know how this business operates? basically people sign up in January, go to the gym for a while and then stop showing up - actually a significant fraction don't even go once! this is why they (the gym's in general) can afford offering this memberships at ridiculously low prices as there is no direct expense associated with these no shows. This practice will be a significant stumbling block in their efforts to increase membership fees. So the gyms have little traffic and the people who use the gym know where to buy the stuff cheaper somewhere else.
From the analysis above, I see no danger in profitability improvement. They will continue to loose money [significantly as operating margins are slim andthey do not have the CF to amortize debt]. On the $.02/share profit estimate for 98 from analysts, the CEO said: "at this point, I can't argue with that [forecast]". IMO there will be a significant surprise on the down side! ...
2. ...BUT HOW ABOUT A CRAZY REVENUE GROWTH STRATEGY, regardless of profitability (i.e., a WDRY style strategy)?. Well, this is not the case here. Opportunities are limited, the business is saturated, the economics don't work for anyone, and expansion through acquisition is not in their plans (don't have a means of getting the resources). IMO this is about as bad a business to be in as I can think of (this is why Bally enterprises got rid of them!). IMO the upward price potential is limited but I can give no assurances.
Be aware that all of the above is my opinion and what I think the future will bring for BFIT. If I am right, a lot of BFIT longs are gonna be slammed out of financial shape!. If this short does not work for me this year, I am very likely to underperform the indices and a significant fraction of active managers! But if it works, hey I will beat the Sh.... out of the indices!, end then probably Pancho Villa will be for real.
Regards,
Pancho
PS: If I really had B's (or were totally crazy), I would cover all my other shorts and put all my shorting power behind this puppy, but I am already beyond the especulation limit.
Hope this was of help. |
