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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (4362)6/30/1998 9:26:00 AM
From: 18acastra  Read Replies (1) of 78735
 
Responses to issues:

Paul - your reaction to Hollywood is typical of most investors, which is why the stock is so cheap. 11x forward P/E for 30% growth. But the misunderstandings are what create the opportunity. Here are my responses:

1) Stores are cash flow positive year 1, just much more positive in year 4
2) Financials don't yet reflect true underlying earnings power of business because store base so new
3) Supermarkets already tangentially in business - don't do a great job as not destination locations, don't stock enough inventory, etc.
4) Blockbuster and Hollywood only companies that can do revenue sharing with studious as only ones large enough for studios to administer directly - need to drill directly into MIS system to monitor sell through
5) 50% of studios revenue (and growing) now comes from video rental. Release window of 30-45 days before a rental type allowed to go on alternative format like PPV or DBS and talk of that window being extended because video rental enormously important category to studious. DBS penetration slowed greatly lately. Only 27mm PPV enabled homes in US and not growing as opposed to 95mm VCR homes -> what do you think is most important to studious?
6) Like I said a very misunderstood story - 11x forward P/E for 30% growth. But misunderstanding creates the opportunity
7) Think WMS Industries, espescially below $3.5 is more interesting than Midway. WMS sells at 50% of the value of its net working capital.
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