Linda,
I share your concern, but a few thoughts come to mind. First, given the expected losses for AMZN out into the future and the reaction of its stock price today in after hours trading, maybe we were lucky to take some $$$ off the table with FC. After all, ALU invested $10 million into FC and got $20 million back out in a year; not bad for a subsidiary that didn't show any profits, and narrow revenues. I don't want to be accused of being short-sighted, but it is becoming apparent to most, that making a profit (much less a reasonable profit) as an e-tailer, is going to be difficult for the foreseeable future. The competition isn't necessarily the Mom & Pop shop down the street, it is the web-site next to you, with equally attractive and eye catching design, and "loss leader" prices. AMZN, I believe, had originally predicted breaking-even in the next 3-4 quarters. Today's remarks by the CEO suggests this may not happen anytime soon. If AMZN is hitting potholes in their business model, what can the rest of us expect as e-tailers?
Allou created a deal whereby we get an immediate 100% return on our total $10 million investment, along with 13% of FC, which has the potential of being a much bigger, more profitable site than it would have likely been under Allou's stewardship. Allou stepped aside to allow the titans of the venture capital world bring FC to fruition. How many companies can you think of that are growing >10% a year in sales and net income, that trade at 75% of book value. At a current market cap of $54 million, if you subtract the $20 million we just received in cash, we own all of Allou and 13% of the "new" FC for only $34 million.
This $34 million company (Allou) generates more than $300 million in sales a year, and has the highest gross margins (14%) and net margins (1.4%) of any other distributor/manufacturer in its class. Allou trades at 1/10 of annual sales revenue! After speaking with David S. (CFO), margins should further expand with the new California mfg. plant coming on-line. The additional capacity will also enable him to "private label" perfume and cosmetics for some of the biggest department stores - Sears (for sure) and he may have said the May Company. This is a brand new business which ALU is uniquely positioned for, and has enormous profit potential. Additionally, he is close to announcing 2 acquisitions, and will launch in the next 6-18 months "Allou.com", to go head to head with the discount retailers: Walmart and Price Club. Another brand new business! Remember Allou is a wholesaler, so they can compete on a price basis with these behemoths - today Allou supplies goods to their competitors. Do you think the stock price, or value investors have factored in the growth potential of two new business lines for Allou? Further, ALU will not be canabilizing or competing directly with their existing customer-base, because this business will be completely on-line. Unlike perfume, ALU will not be constrained on the pricing side with Health & Beauty aids.
The story, in my opinion, is an exciting one. I would encourage you to take a minute and call David Shamilzadeh, he is warm, very approachable and may set your mind at ease. Linda, I work with institutional investors for a living, what we saw yesterday and today, is the little guy/internet investors fleeing the stock. The volume hasn't been extremely high - and it takes the "big institutional value investors", sometimes a week or two, to react to these kind of announcements. Some of the new investors in FC are impressed with little ALU's business plan, and we may finally get some real attention from the institutional crowd if a Hambrecht & Quist or some other investment house decides to initiate coverage of this stock. Looks like we could be moving to the NYSE this fall, etc., etc., etc. No bad news that I can see on the horizon - in fact company appears to be firing on all cylinders - just under-followed at this point, hence under-appreciated. Right now is the time to be either accumulating the stock, or just holding on to it, before everybody else sits up and begins to take notice. Allou is one of the most undervalued stocks in the entire U.S. market right now (Amex, Nasdaq, or NYSE). Eventually the market will price it correctly. For now, keep it under your pillow and sleep well at night. I hope you hang in there with the rest of us, but I completely understand if you feel the need to sell and move on. Best of luck to all. Long and strong ALU!!! :) |
