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  • white_sox_curse white_sox_curse Mar 13, 2008 9:17 PM Flag

    After reporting earnings

    TBSI goes down during and after trading hours. what a joke. No connection between performance and price. TBSI and the others should have stayed private. Probably only have half the fleet size but the owners enjoy all the profits.

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    • NOT!

      Remember Warren Buffett's constant mantra. When you buy a company, pretend there is no stock market. How would you value the company?? Determine what the shares are worth. that's known as its "intrinsic value". Pretend the stock is the harware store down the street. What would you pay for it? This is the part that requires analysis by the way.

      Then you go look at Mr. Market and see if he is willing to sell you those shares at a great price - below intrinsic value, and perhaps even better better for a large margin of safety.

      I calculate the intrinsic value of TBSI to be about $75 - taking into account the latest earnings report. The market is only asking about $31 to buy the shares. Mr. Market is acting irrational - AGAIN!

      You know what most people do for stock analysis?? They look at the price to see if it is going up or down. They then make buy or sell decisions based on the direction of movement. If Walmart had a sweater priced at $500, up from $200 3 months ago, is it a good deal??? If that sweater were a stock, it's amazing how many people would say yes.

      TBSI is this scenerio. There is a tire in Walmart. A year and a half ago, they had that tire priced at $5. Because of high demand for tires, a year later, the price rose to just over $70. Many people bought that tire because it was going up in price. All of a sudden, people freaked because they mistakenly though the price of rubber was going down. So they waited before buying new tires. At that point, Walmart had to lower the price of tires to as low as $17. Because the price of tires was falling. Nobody wanted to buy tires, as they could get a better deal later. They even sold spare tires they had in their garage! Now the price of tires is generally rising again. They cost about $31 now.

      From the movement of the price alone, can anyone tell me what a fair price is for a tire?

      Now suppose I tell you that if you rent a tire over the next year, you can make $6.00 off it. Would you pay $31 for that tire?? Of course you would! That's nearly a 20% return! And nearly risk-free! In fact, you could go to the bank, get a loan at 9%, buy the tire and rent it, and collect 11% difference between the cost of borrowing and the return from the tire! That assumes the price of tires does not change, and that the rent stays the same!

      TBSI is the tire. It costs $31 to buy one. Earnings over the next year off that tire will be about $6.00. The difference is also that the rent you can charge on the tire is going hire. Further, so is the demand for tires! That means that the value of $31 for that tire is far too low!