My back of the envelope style valuation, accepting analysts' earnings projections of .40 for 1998. They're supposed to be smart, right? so I'll accept that for now as optimistic, but possible.
Personally, I don't think the health club business can generate much better margins than it does now, because, as has been pointed out before, barriers to entry are almost non-existant, far too much competition. And I just can't give any credibility to rehab as a profit generator. So new earnings would mostly have to come from selling their "nutricionals". That might be possible, but lots of competition there too.
I am unclear on how much the refinancing will reduce their interest expenses, but if I guestimate that interest expenses are cut in half,
that puts them roughly at breakeven, assuming 1998 revenue and expenses equal to 1997.
1997 revenue of 661 mil. minus expenses of 641 mil. is 20 mil. profit from operations. ( 3% operating margin )
Now, analyst estimates of .40/share with 20mil shares outstanding would be $8 mil. That looks like a 40% growth rate to me, perhaps justifiying a forward PE of 40, or share price near $16.
Yup, it's a short. |
