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Non-Tech : Borders Group (BGP) -- Ignore unavailable to you. Want to Upgrade?

To: George Papadopoulos who wrote (388)	9/13/1999 10:56:00 AM
From: George Papadopoulos	Read Replies (1) \| Respond to of 411

detnews.com Stocks: Fund manager still likes Borders Slow growth in sales, late arrival to Internet doesn't repel Dreman By Pat Dorsey / Morningstar StockInvestor When a smart fund manager takes a big position in a stock that everybody hates, it's usually a good idea to take a second look at the stock. The stock in question is Ann Arbor's Borders Group, which has been hurt by online bookseller Amazon.com. After starting the idea of superstores with coffee and CDs sold alongside books, Borders was late to the Internet party, opening its Web site a year after Barnesandnoble.com's and three years after Amazon's. When Borders.com finally debuted last year, it wasn't the hit the firm had been hoping for, and Borders.com remains much less popular than the two rival sites. Moreover, Borders' sales growth has slowed, the company's CEO recently resigned after just six months on the job, and first-quarter earnings were below analysts' original estimates. Sound unpromising? Wall Street certainly thinks so: Borders' stock is trading in the midteens, far off its 52-week high of $41. But if the company's prospects are so darn bad, why has David Dreman bought almost 11 percent of the company's shares during the past four months? (Dreman has built a great track record at Kemper-Dreman High Return by buying companies that Wall Street has left for dead.) A little investigation into Borders shows why: The 8.4 million shares Dreman bought were very cheap, and the firm has a lot going for it. So what's to like about Borders? Although growth has slowed from the firm's heady days in the early 1990s, sales and earnings still grew by more than 14 percent last year. Granted, much of this growth was driven by the firm's rapid expansion -- same-store sales, which ignore sales at brand-new stores, increased only 3.5 percent for the year and were up a paltry 1.7 percent in the fourth quarter. Same-store sales, though, did grow by 4 percent in the first quarter. So even if growth isn't spectacular, at least it's improving. Moreover, Borders' low stock price already reflects the firm's troubles, and then some. The stock trades at a historically low valuation of about 13 times this year's estimated earnings. Finally, online booksellers aren't as much of a threat to Borders as Wall Street thinks. Internet booksellers currently have a few percentage points of the total book market, and even the most optimistic forecasts peg their eventual market share in the low teens. That still leaves 85 percent or so of the book market for firms like Borders, and Borders is positioning its stores as "destinations" -- places to go, have some coffee, and browse, rather than just a way to quickly pick up the latest bestseller. Despite what Internuts might say, Borders is not going to be driven out of business by the dot-com crowd. It is, however, going to grow more slowly -- but the stock market has already priced in this lower growth rate. And there's a lot to be said for the fact that everyone hates the stock. Expectations are so low that even middling financial results should drive the shares higher.