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

To: Harpo who wrote (1943)	10/22/1998 12:54:00 AM
From: schadenfreude	Respond to of 2506

Re: OSI I'm not sure that this is a good tax-selling candidate. While it took a dive in Q3, it's still up quite a bit for the year. Billboard companies are Street favorites because they generate huge amounts of free cash flow. Once you put up the billboard, capex is low and there's not a lot of competition. Earnings are pitiful because of the heavy debt load as well as the amortization of goodwill from all the acquisitions. This is one of those rollup industries; lots of horizontal mergers. The consolidators, OSI, LAMR, CCU, etc, are growing rapidly and able to show large year-over-year revenue growth even though the industry growth is limited to price increases (govt regulations limit the building of new billboards). It's a lot like broadcast. Getting back to earnings, I don't think Wall Street cares. The mergers generate a lot of deal flow, so they WANT to like these stocks. Their answer is to ignore earnings and focus on EBITDA which makes the valuations seem more reasonable. Nevertheless, I think they're way overvalued. Interest does matter, especially considering all the debt these companies have. On a book value basis (after you strip out the goodwill) or price/sales basis, they look awfully expensive. Also, outdoor advertising is cyclical. In a recession, these debt-ridden companies could have serious trouble. Finally, the cheap acquisition opportunities are gone. That they are looking abroad for targets may mean that they're running out of targets here(which would mean a slowdown in revenue growth). I've shorted them before on the basis of valuations and lost money. Maybe I'll reshort if the economy slows down significantly.