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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Harpo who wrote (1358)	7/7/1998 3:34:00 AM
From: Q.	Read Replies (1) \| Respond to of 2506

Ben, TAVI might qualify as a reasonable broken stock. The stock has plunged really hard, and as you said they are nearly always unprofitable. The market cap is in the right ballpark to qualify as a broken stock ($54 M market cap plus $150 LTD gives $200 M enterprise value) Plus they burn cash. Their cash flow from operations is basically breakeven, so their (fairly substantial) capital expenditures cause cash burn. Cash was only $4M, which isn't very good considering the cash burn. They have been sustaining this situation by increasing borrowings, which is something that won't work forever. On the other hand, the fact that they have significant LT debt might discourage me from considering this as a short. Having LT debt is like having a mortgage ... it shows that you have some stability. If they had a lot of current liabilities, that would be a better indicator for a good broken stock to short. You are right to mention the importance of understanding the industry, which I don't. The table below is what I came up with, from Market Guide: . COMPANY COMPARISON TO THE FOOD PROCESSING AND S&P 500 AGGREGATES COMPANY INDUSTRY % S&P 500 PROFITABILITY RATIOS: Net Profit Margin -1.05 4.64 -22.6% 10.54 Return on Equity -12.34 23.35 -52.8% 22.04 Interest Coverage NM 4.63 NM% 10.08 VALUATION RATIOS: P/E Ratio NM 43.61 NM% 30.96 Dividend Yield 0.00 1.61 0.0% 1.37 Price to Tangible Book 1.43 15.16 9.4% 10.75 Price to Book 0.79 11.31 7.0% 7.57 Price to Free Cash Flow -6.53 39.54 -16.5% 44.11 FINANCIAL STRENGTH RATIOS: Current Ratio 2.01 1.36 147.4% 1.47 LT Debt to Equity 2.19 1.22 179.5% 0.79 Total Debt to Equity 2.26 1.69 133.4% 1.04 GROWTH STATISTICS: 3 Yr Rev Growth 7.37 6.63 111.2% 14.79 3 Yr EPS Growth NM 11.90 NM% 15.92 3 Yr Div Growth NM 11.59 NM% 10.94 Reinvestment Rate 100.00 60.18 166.2% 67.87