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Nautilus Inc. Message Board

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  • astral_tsar astral_tsar Mar 7, 2005 9:10 AM Flag


    Sure, but rate rises affect everything. At $23 the share, NLS has a 4.3% earnings yield, exactly the ten-year treasury rate. If rates rise, both those returns will become disappointing and the resale values on both instruments will drop.

    I'm not sure I understand your point about the dividend. If cash returns are your standard, that only casts treasuries in an even more favorable light? The 10-year bond pays the whole 4.3% in cash; NLS only pays out about 1.8%.

    Equities are more risky than treasury bonds. You run all the interest rate risk, plus additional business risk. I don't think that's controversial. You need a higher return to compensate you for the risk.

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    • Not if you are holding the note. If you are holding the note, you lose value as the interest rate goes higher... the only way you are guaranteed that 4.3% return, is if you hold the note until expiration.

      My point about the dividend in NLS, is that it is the floor at which you combat inflation. In other words, by holding the stock, you are hedged against inflation by the current 1.8% yield.

      Now, to be sure, a 4.3% yield looks more appealing... however, that is the MAX that you can return. There is no shot at yielding 4.31% should you lock in your rate and hold the note.

      Sure, there is more risk in holding stocks... there generally always is vs. US federal notes... however, the potential of a reward is also available by holding the stock. Again, NLS would only need to trade a mere 20 - 25% higher by the year 2015 for you to break even as far as returns go, with a 10 year t-note.

      • 1 Reply to hillbillythekid77
      • Yes, there's the upside potential with equity. If that's large enough then long-term holders could do better with NLS than with the 10-year bond. Otherwise not.

        I'm not smart enough to consider price fluctuations when talking intrinsic value. So I'll stick to the intrinsic value for long-term holders of both securities. Unless NLS grows earnings significantly, it is plainly worth considerably less in long-term intrinsic value than the same amount of money in 10-year treasuries.

        Don't get me wrong, I'm not recommending treasuries. I don't have any of those, either.
        And good luck with the trading gains. You may very well come out ahead.

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