Tab, I've said it a million times- Navarre is now a "show-me" stock. They can talk all they want about how they are transforming the business, but until they actually DO IT and SHOW IT, they will earn the single digit multiple that they have had for years and that they deserve.
The other problem is, all they ever talk about is "adjusted ebitda". Try to go to a bank and find a deposit slip for "adjusted ebitda"- there is no such thing. All that matters is NET PROFIT. And even if they meet NEXT year's "adjusted ebitda" target of 20M, that equates to squat in net profit. It's more like about $8M. That divided by 55 Million shares comes to about .14 a share in NET PROFIT. And that is 15 months from now!
And their sales target implies about 10% total growth in revenues. What's a fair p/e for a company growing revenues 10% after years of declines. 10? 12? Even at 15, that only gets you to a stock price of $2.10.
I've stated here for two years that this was dead money. And even after the acquisition of Speed, it remains dead money.
Jay, I agree with you on your point about Navarre having to "do it". I believe they have taken the first couple steps (cleaning up operations, buying SPEED) toward doing it and are well on their way.
I disagree with you (slightly) about net profit and ebitda, only because I have found ebitda to be (on average) a better way to value a company so it has been useful to me.
A couple points:
- I believe Navarre reaches $1 billion in revenue within 4 years and does so with ebitda of 4% of revenue or $40million.
- I believe NAVR's valuation will start to look more like AMZN and less like a widget distributor within about 3 years. Meaning much better EV/EBITDA valuation.
- So, put a multiple of 12 on that $40mil ebitda and you have NAVR at $8/share. It is also conceivable that EPS will be pushing 50 cents at that $40mil ebitda level.
But yes, they do have to do it. The last thing I know is that at no time in the last decade have I felt more comfortable owning NAVR. I remember first buying shares at $1.03 and selling the last of them at $12.63, then crying as it went over $20.....then buying too soon (5s) on the way down....but adding lots at 38 cents.....feeling thrilled when it touched 3 a couple years back....selling too few in the 2.60s on the way down.....not buying in the recent 1.20s.....not selling any at 2.20....adding a few last week at 1.95....Been lots of fun (no pun intended) but I fully expect future gains to dwarf those of the past.
I sure wish Willis and friends had bought as many shares this Feb as last Feb.......
Oh, and one other thing. The Extreme will certainly come out of his bunker and accuse me of trying to "talk the price down" for a better entry price. I said a year ago I had no interest in buying back in, and nothing has changed. Yes, Willis is sharp. Yes, they are moving in a better direction. But none of that changes the fact that their core business continues to deteriorate. And the growth areas are very low margin. Not to mention, they overpaid for Speed if it meant adding 17 Million shares to the float.
The only thing that would change my mind is a significant increase in revenues on the "new" side of the business. They have the warehouses, infrastructure and technology to do triple the business with very little increase in expense. That is the key here. But they have to actually DO IT.
In the meantime, I'll once again mention IMOS as a much better opportunity to make money over the next year. Quick story- Chipmos is a Taiwanese (emphasis NOT Chinese) company in the tech space. They sit directly in the sweet spot of smart phones, tablets and other hot devices. Their financials are very difficult to comprehend, but they are minting free cash flow. Profits are ramping due to lower depreciation expenses from a big build several years ago. They are very close to a new dual listing on the Taiwan exchange with their US shares becoming ADR's. Multiples are much higher in Taiwan and they are presently working on the IPO. They should begin trading on the "small" Taiwan exchange in the next 60 days, then have to wait 6 months to begin trading on the Taiwan "big" board. Two firms have picked up coverage on IMOS, both with price targets above $20. Stock is currently trading just above $10. Very good board on Yahoo with great information on the upcoming new listing and very likely impact on the stock price. 30 minutes of legitimate due diligence this weekend will have you buying on Monday morning...