OFF-TOPIC: RAY, REPLY TO BRUCE
Bruce,
By great coincidence, I do know a little about Raytech, researching it in late September. I decided that it was a good stock to avoid. It is too dangerous a stock to short, but I suspect it will eventually go to zero.
As you pointed out, the financial ratios are incredible, except for the fact that the industry is mature, and the company's sales and earnings growth rate isn't very impressive. Thus, it shouldn't deserve a very high P/E, in any event. Still, the company would be worth 30 to 60 dollars a share, instead of 5 1/2, were it not for the litigation which will probably destroy the existing shares.
This company was formed from the assets of Raymark, although the intent was that the company would be exempted from Raymark's asbestos liabilities. Raytech was nonetheless sued about nine years ago, and between losing money (at the time) on their business, and paying lawyers, they sought protection under Chapter 11. The company has been in Chapter 11 for nine years, and as a consequence there are no analysts following the company. The company has been very profitable the past few years, so that their P/E is 1, their P/book is 0.47, P/sales=0.07, P/cash flow =1.00. As I said, the stock looks great, except for the growth rate and the litigation.
The company has been ruled to be a successor of Raymark, and this was a devastating decision. After that time, the company proposed to give the claimants a 51% interest in the company, but the claimants declined, as they have proposed taking the entire company. (The existing stock will be wiped out, and a new class of stock will be given to the claimants.)
I had thought that it was up to a bankruptcy court to decide on a settlement. However, I finally spoke with someone at Raytech, who told me this is not the case. He said that all the court can do is mail the two competing plans to the creditors (who are the claimants), and let them vote on it. I'm not sure that I understand this, as if this is true, it would seem that in every bankrupcty case, the creditors could simply refuse to settle, vote down any plan that gives them less than 100% of the company, and vote for their plan that gives them 100% of the company.
The man I spoke with (about a month ago) indicated that Raytech had lost some other recent legal maneuvers in the past three or four weeks, and it didn't look promising for current shareholders.
The only thing that surprised me, was that he said the management team hadn't sold their positions. I wanted to ask why they didn't sell, if the situation is as hopeless as it sounds, but I decided that I wasn't going to buy the stock anyway, so I didn't ask.
It's surprising to me that the stock is still trading so high, if the stock is going to be worthless very soon. I guess people are still praying for some miraculous settlement, but it sounded pretty hopeless to me. (Maybe market psychology won't allow a company to trade below a P/E of 1, no matter how hopeless things appear.) Anway, I think you can mark down another victory for the ambulance chasers.
I hope this has helped you. If you still feel that you have too much money, I can recommend charities for you to invest in, which may provide a better return for society.
- Charles |
