MGM Down, ZLC UP, MVL/ACI/WLT not going down
MGM fell today - our puts have almost doubled, which is nice
ZLC however rose sharply - which confuses me. All signs are pointing to much lower sales. I can understand that earnings will be better as they close stores and layoff employees, but that's not enough to counter a major drop in sales.
Meanwhile, I keep hoping for a better buy-in price on ACI/WLT and espceially MVL
When MVL dropped $1 last week I got excited, but it snapped back. Darn. And there are barely 2 weeks left before IRONMAN debuts. I may have to bite the bullet....
ZLC however rose sharply - which confuses me. All signs are pointing to much lower sales. I can understand that earnings will be better as they close stores and layoff employees, but that's not enough to counter a major drop in sales.
Meanwhile, I keep hoping for a better buy-in price on ACI/WLT and espceially MVL
When MVL dropped $1 last week I got excited, but it snapped back. Darn. And there are barely 2 weeks left before IRONMAN debuts. I may have to bite the bullet....
posted by Andrew at
11:03 AM
3 Comments:
Couldn't ZLC gain if their inventory (of gold, diamonds, etc) appreciates in value? With the way commodity prices have been moving, this could be a significant factor. Their price/book at 1/31 was 0.92, and almost all their assets are retail inventory.
I wondered about that as well. Especially the gold, which is up 10%. They have stated inventory of ~$1B, of which some portion is gold. If 75% of inventory is gold, that's ~$75M in extra value. But gold was a lot more valuable back in February. When I chart them against GLD, they are not correlated.
In fact, ZLC is up ~40% for the year!
I've been particularly focused on sales - which continue to drift down and will drift lower as they close stores.
The premise here is basic: their customer base is disappearing fast! As a chain jewelry store based in shopping malls and kiosks, they sell precisely to the people who are losing jobs and/or facing belt tightening.
Meanwhile, their products are just getting more expensive and out of reach of their core customers.
I expect sales to drop faster than their cost cutting can address.
The only thing I can imagine is that they will be announcing something amazing and word is leaking. Or maybe they are doing selective share buybacks to push up the price.
Also, check out the fundamentals:
P/E: With a 31 P/E and a forward P/E of 20, the company is overvalued given the drop in sales.
P/S: They are priced at a fraction of sales (0.32). That's pretty cheap.
Market Cap: $830M Market Cap, equal to inventory
Cash: Almost none and $100M in debt.
They don't seem to be trading at a premium to liquidation value, but all other indicators make them overvalued.
There is one final idea: short squeeze. Some 34% of the company is shorted and this is options expiration week.
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