Warning: long post. re: Adams Golf. I think some of you might really like this one. But if you're not into long posts, stop now.
Check the financials on EDGAR for the earnings numbers, and you will get a much different picture. (I am going to go partially balistic here, but it is not directed at Jeff Bash. If he had really gone at me about my reasoning on the investment it would be, but he just posted one observation from the 10 second drill we all do regularly when we see somebody post a ticker on this thread - it is the advocate's responsibility to make the case, which I am about to do.)
First I want to point out something about Yahoo, Baseline and all those other "services". The dirty little secret there is EVERYBODY USES THEM FOR THEIR INITIAL SCREENS. If a number is wrong, or just misleading because the robot does not understand some glitch in the financials, you've got an advantage over 99% of investors if you notice the error. This is called a market inefficency. Market inefficencies are why value investors bother to wake up in the morning. Understanding what these databases systematically get wrong is something we all might want to spend some time on. ADGO is an extreme example. Of course this will do none of us any good if we use the same faulty sources. God created the 10-K for a reason.
It boggles my mind how often I hear my colleagues - well paid institutional investors - argue with my analysis of an SEC financial statement because some computer database on their laptop shows a different number. This is a dirty little secret of the investment management business. The guys managing your mutual fund - I would bet even odds - don't read the basic SEC financials of half their stocks before they buy them. Call me stodgy, but that is inexcusable for any investor, institutional or individual. Especially institutional. They don't tell you that in their quarterly letters, do they?
I have never used the Yahoo "fundamentals" database, but I just found it to figure out where the devil Jeff found such a wrong trailing 12 months earnings number for ADGO. When I saw it it just made me laugh - once again, not at Jeff, but at Yahoo posting these numbers as if they are fact. The -0.37 figure is their 1997 loss. That number is a year old. Before it was a public company. Certainly relevant, but not if you're looking for a trailing 12 month number. Lets take one more step. The prospectus shows that the earnings for 1997 were grossly distorted by a huge one-time expense. I could easily argue that 1997 earnings were actually a PROFIT of $0.60 per share. That means by my calculations trailing 12 month net income is $1.17 per share. (I have been doing this on the fly, bouncing between EDGAR and this message, WOW, this stock is even cheaper than I thought! Before I did this, I thought trailing 12 was half what it is!) The Baseline database (the crutch for lazy institutional investors) misses half of ADGO's cash on the balance sheet because it is accounted for as long term marketable securities - so in their database it looks like fixed assets! And on Baseline's cash flow statement, believe it or not, they call it capital expenditure when ADGO invested its cash in longer term securities! Talk about getting a distorted picture of a business!
This all boils down to three points:
1) You've got a $4 1/4 stock with $2.75 in cash and substantial trailing earnings.
2) Yahoo and the similar crutches institutional investors use to avoid reading SEC documents are often very wrong. I am not playing holier than though. WHAT I AM SAYING IS THIS IS A MARKET INEFFICIENCY. COULD THIS BE THE REASON WHY THIS STOCK IS SO CHEAP? THAT WHEN I DO MY [NEAR-NET/NET + PROFITABLE] SCREENS IT DOES NOT COME UP? AND IF IT DID IT WOULD NOT TRADE AT THIS PRICE BECAUSE 10 MILLION INSTITUTIONAL INVESTORS WOULD HAVE FOUND IT SIX MONTHS AGO?
I agree with you on the industry - its miserable in the long term. But I have no intention of investing in Adams Golf for the long term. This is pure Ben Graham if I can nail down the analysis. I'm not there yet. There are questions I want to ask this company. I also want to see the December balance sheet to see how much cash they burned to launch this new product. Their past use of capital leads me to infer "not enough to matter". This opportunity looks good enough that I will sleep on the idea of buying half a position tomorrow at the open.
It looks a lot like a textbook Graham play with the added benefit of an industry with manic investor psychology. Put those two together, and it means "low risk potential triple in six months". That is very different from PSO. Or maybe I'm missing something huge. I know the industry sucks. I have my Graham hat on here, not my Buffett hat.
One last thing. I may buy this tomorrow for the reasons above. But there is one reason why I would wait. And if you want to do your own homework to check my facts, it is not fair for me to post the good things without the bad one. I have heard that product returns under warranty are huge. Just a rumor, and it does not show up in the financials. It is certainly something I will ask the company, but they are in a blackout until they release earnings next week.
Sorry for the long post - I have never done a post while I was doing research. If it reads like a stream of consciousness, that's why. But if it makes us money, who cares?
Substantive feedback is extremely welcome. Has anybody used their products? Does anybody know the new products? Does anybody get a different read from the financials than I got? If I'm wrong tell me now before I suck a lot of other people into an error.
I HAVE NOT DONE THE HOMEWORK I WOULD CONSIDER SUFFICIENT FOR A CONSERVATIVE INVESTMENT. CHECK MY FACTS, AND DIG DEEPER. OTHERWISE I DON'T WANT TO HEAR ABOUT IT IF THIS GOES TO 2 AFTER THE EARNINGS REPORT NEXT WEEK.
JJC
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