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Strategies & Market Trends : Roger's 1997 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: TAPDOG who wrote (8874)	12/25/1997 3:04:00 PM
From: Pancho Villa	Read Replies (1) \| Respond to of 9285

Tappis>>I'm short BFIT, 50% on the fundamentals and 50% on your enthusiasm. << Fine but if I were you I would not put so much weight in my enthusiam. Remember I am latin, a bit hot blooded, but so is the cuban Asensio. PCTY: will look at it. Pancho

To: TAPDOG who wrote (8874)	12/25/1997 3:59:00 PM
From: Pancho Villa	Read Replies (1) \| Respond to of 9285

Tappis: RE PTCY. Nice pick! how/where did you find it? After a preliminary look: Plus side [for shorting]: 1. the stock looks quite overpriced, profitability is terrible [can it be improved? are they investing for future growth?] 2. the business is easy to understand. No big surprisses like a new drug approved by the FDA or a revolutionary new technology anouncement. Minus side: 1. even if they are wrong, there is a long string of recent analyst upgrades which may carry momentum. 2. The revenue upward trend is quite impressive, even same store sales. I am interested enough to put some time on reading the SEC fillings in detail. Today is a rainy day at the beach [as people may have guessed from my many posts at SI]. Pancho I started reading the last 10Q... so far the only thing I did not like was insiders selling stock along fresh shares in the May public offering. They have shown impressive growth in 97 and remarkably they are not to far from breakeven. Cash flow from operations is very negative due to increase in inventories and others... this is reasoonable given the sotrong gorwth. The key is whether they can be profitable once growth stabilizes. Gross margins are at around 29% not so bad if the number of stores/royalty revenues increase economies of scale significantly.

To: TAPDOG who wrote (8874)	12/25/1997 8:14:00 PM
From: Pancho Villa	Read Replies (3) \| Respond to of 9285

Tappis and all you will find this interesting. RE: (Party City Corp) PCTY. Done with the homework. IMO some time in 98 shorts will start partying big time. Revenue growth has been achived through buying franchised stores, opening new ones and about 10% growth in same store sales. One very interesting fact is that when buying the franchised stores they have never paid more than about 0.5 times annual sales and even less! However their current market cap places them at over two times annual sales! and an outrageous PE since for the first nine months of 97 they have only made $.05/share. Assuming management knows the value of franchised stores better why are the dummy investors paying more? Perhaps they have some incredibly good plans to improve profitability! Is this a typical revenue growth story with the promise of potential profits that will never come? The latest 10Q does not discuss at all future business plans and/or how they expect to become profitable. From Zacks the consensus earnings for 98 is $1.32/share with a high of 1.40 and a low of 1.20. It would be nice to have someone call them and have them explain how they expect to achive this rather challenging feat. Balance sheet is fairly clean but IMO they cannot generate the cash flow required to continue growing revenues without issuing either equity or debt. [Actually, whether this is a profitable business worth growing is an open issue!]. It is very likely these guys are creating a classic revenue growth shop, a frequent trap for dummies during a crazy bull market era and they just don't care whether adequate risk adjusted returns can be made. It is interesting to notice they were much more profitable under the mainly franchise system! One posibility is that after royalty payments franchises were hurting and complaining, wanting to get out and then some clever bankers decided to suck the dummies in by raising money to buy worthless revenue! S13s reveal insiders and the investment houses recommending the stock [JP Morgan among them] as significant 5% or more stock holders. IMO Nothing to worry about. Let's hope the split, upgrades, Zacks strong buy rating, continue to pump this sucker and them we will take over. IMPORTANT: The crucial step is have someone verify these guys have no chance to improve profits margins. Pancho