Direct Focus Inc. (DFXI) Message Board

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Gold/Mining/Energy : Direct Focus Inc. (DFXI)

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To: Mark Hill who wrote (340)	10/25/1998 10:51:00 AM
From: BEEF JERKEY	Read Replies (1) of 768

Hi All: Regarding a share buy back the point is the company was sitting on ~ 15 million+ $CAN June 30 and are gonna add to that by a few more mil. with Monday's results. They have to do something rational from a business and shareholder value point of view with this dough. Sitting in a money market account the money is delivering little bang for the buck. The new product launch requires about ½ mil. seed money and after that will become self financing and profitable due to the careful nature of management and their proven (Bowflex) business plan. So they don't really need too much cash to grow the business and yet have to do something with the cash on hand. As Gordo has pointed out another thing they could do with the money is buy another business. They are doing fine on their own (I was told a third product is possible the first half of next year) so I can't see where that makes sense unless as Gordo also pointed out they can buy a co with more value than DFX that is also a good fit (unlikely). So this would not likely be a rational path to enhancing value. This leaves the directors with two options. Start paying a dividend or buy back shares. Buffet views both favorably but prefers buy backs. In a manner of speaking ultimately the job of the company directors is to enhance shareholder value as shareholders are theoretically the owners of the business. Directors also tend to hold massive amounts of shares themselves so they don't look on this point of view negatively. As Buffet points out the purpose of a share buy back is to return money to the share holders by reducing the number of shares and increasing profit per share and increasing the stock price. By buying back at a certain price by the company shows that insiders feel there is value at that price. In my conversations with management they feel the stock price is very undervalued at these levels. Currently DFX could afford to buy back over 1,200,000 shares @ Fridays close which is about 150 - 200 days trading volume. That sounds extreme but they do have to do something with the money and even if they spent every last cent with no debt and their quarterly cash flow they would still be stronger financially than most companies and it would not be to long before they had too much excess cash on hand again. As for the current price of DFX it is undervalued by any measure. If DFX were trading on a U.S. exchange believe me it would be way higher. The price has appreciated significantly in the last year but only in proportion to the earnings and revenues with a straight forward clean balance sheet and no debt. This time last year DFX was trading at about the same P/E as now. The company's cash position is now larger ($2 a share) and management has proven that they have know how to market and create a cash cow. They are in the process of applying this know how to a promising new product with more to come. This knowledge is probably the most valuable aspect of DFX. Bowflex is a good product but the real strength of this company is it's ability to sell product and make tons of money doing it. This is beyond dispute. Given what is now known about the company's abilities (eg. the most recent quarterly revenue increase) the shares are selling at a large discount. BFX Rev's are not slowing and a new product is gearing up. The company buying back shares around these prices makes perfect sense. My $.02

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