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Frontier Communications Corporation Message Board

  • telecominvestordude@ymail.com telecominvestordude Mar 26, 2013 9:23 AM Flag

    Pop Quiz for Buyers of Frontier Stock

    If you buy gas for your car every couple of weeks, are you happy or sad when the price of gas goes down?

    If you buy hamburgers from Mickey D's for lunch, are you happy or sad when McDonald's lowers the prices of its burgers?

    If you are regularly buying stock in Frontier because you think the discounted present value of its future cash flows is much higher than its present stock price, are you happy or sad when the price goes down?

    (BTW, if you answered sad to that last question, then you may want to examine why exactly you were buying the shares in the first place.)

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    • "f you buy gas for your car every couple of weeks, are you happy or sad when the price of gas goes down?

      If you buy hamburgers from Mickey D's for lunch, are you happy or sad when McDonald's lowers the prices of its burgers?

      If you are regularly buying stock in Frontier because you think the discounted present value of its future cash flows is much higher than its present stock price, are you happy or sad when the price goes down? "

      Your tortured logic equates consumables like food and gas to a perpetual investment like equity. Your comparison is not valid.

      Furthermore, you supply no supporting facts to support the conclusion that your computations reveal that FTR is trading at a discount to SOMETHING vague regarding future cash flows -- are you talking about the present value of FTR dividends to shareholders, or operating cash flow to FTR, or free cash flow to FTR?

      • 1 Reply to mr_dinky_dot_bomb
      • telecominvestordude@ymail.com telecominvestordude Mar 26, 2013 4:13 PM Flag

        I'm actually not sure I'd consider FTR a perpetual investment. It's more like an oil well. It's in long, slow decline. As long as Ma and Pa Kettle in rural West Virginia pay their monthly bills for slow 1.5 Mbps internet and copper telephone, there will continue to be cash to extract. Just like with an oil well.

        Frontier is not going to figure out a way to magically solve the problem of wireless switching in populated areas, nor is it going to find a way to magically catch up with the cable companies in high speed internet.

        I wonder if the people who bought FTR at $5, $6, $7 or $8 a share were under some sort of weird illusions that FTR is like another Comcast or something.

        Regarding the question of FCF or dividends, take your pick. If FCF isn't eventually converted into future dividends, then it's money lost.

    • P.S. There is one other reason that a regular buyer might not benefit from a falling share price and that is when the company might possibly be able to use its equity for "currency" (at which time having it be above "net value" is a win for the company and the shareholder but having it be sliding away from "net value" constrains such a strategy.) This is why the argument that improper short selling really doesn't hurt a company and that the performance of the company is what will determine the future share price. However, sometimes having an artifically depressed share price can change the future cash flows for the negative!!

    • If, however, you are no longer buying the stock and have a "full position" then you would clearly prefer to see it move up. The only time someone with an existing position might be happy to see the stock go down (if not adding to the position) is if the company has an active buyback program in effect and thus can buy more of its shares and thus increase the static owner's % ownership by doing thus.

      Of course, there are many stocks where a prolonged slide in the stock possibly represents one of two very negative things for someone who is adding to their position:
      a.) Either their calculations and assumptions about the present value is incorrect OR
      b.) There is "information" that is not in their calculation but may be know to the sellers who are driving the price down.

      FWIW

      • 1 Reply to audphil78
      • telecominvestordude@ymail.com telecominvestordude Mar 26, 2013 4:08 PM Flag

        I agree with you 100%. If a.) or b.) is true, then the buyer of Frontier is going to lose a lot of money.

        Whenever you buy shares of a stock, there is someone on the other side of that trade selling you those shares. If you are not sure that you have done better analysis than that other person, then you are likely to be the loser in that trade.

        I wonder what goes through the heads of people who bought FTR at $5 or $6 and are now crying because the stock has fallen to less than $4. If they didn't do the proper due diligence in the first place, then they have no one to blame but themselves. But if they did do the proper DD, then they should be celebrating a fall in the stock price because it means their margin of safety has increased.

        But you're right about buybacks. It would be interesting to see what would happen if Frontier cancelled the dividend and instead used the $400 million a year for buybacks.

 
FTR
8.00+0.05(+0.63%)Feb 26 4:00 PMEST

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