The current stock price does not seem all that logical, however I wouldnt rule out the stock price going lower if a major retailer dropped True Blue from the shelves. Over the last week, this board seems to have highlighted every single problem with Leading Brands at the moment with very little mention of the postives or any reference to valuation.
Lets look at the price and health of Leading Brands. Is this a 40M company or a 100M company? If you believe the bashers here, we're due to lose another 40-50% in share price, which would put this companies worth around 20M. A price that it traded at before True Blue was ever a product they offered.
1. True Blue is in 14,000 outlets. To my knowledge, this number has only grown in each quarter. The product is in most places in Canada, including Walmart. Of course, Leading Brands has a much strong presence in Canada than in the United States. However, True Blue did not exist 2 years ago. This is tremendous growth in a short period of time.
Albertsons was the first major chain store to take on True Blue. Its been in those stores for nearly two years and Supervalu and now the Albertsons chains in Florida seem to also carry True Blue. While the price in Albertsons is a cause for my concern, the track record of growth does not concern me. They have seen Green Tea (and probably Rasberry) come and go in their shelves however the product is still there, almost 2 years later. Something a lot of the bears here have said would not happen.
2. The company balance sheet has clearly improved over the course of the year. This was a company with NEGATIVE working capital 9 months ago. The company balance sheet has improved by nearly 2M dollars over the course of the year.
3. The sales of Monster, Fiji, and Stewarts Soda are higher than they were 2 years ago. These are brands they represent and own in Canada. I have often argued that the company would be worth its current valuation on the strenght of these brands alone, if the company did not have True Blue sucking away profit. By all means True Blue is the pulse of this company, its the growth and the reason this company should be worth 100M, but it cost money to build a brand.
4. There is a great worry about the companies growth prospects for 2007. I think almost most everyone has discounted that McRae can bring in another major retailer for True Blue. I am not a finance major, however the company recently doubled its sales force in the last quarter. They have added two or three new executive positions in the last 6 months and started an advertising campaign. This hardly seems to be a company contracting, despite the direction of the bottling side of the business, which is one of the reasons we get such a lame multiple compared to other companies in the sector.
5. LBIX has made $980 after 3 quarters (Net GAAP). Thats less than my daily salary over the last 3 years from trading and investing in stocks. However, its worth noting that even thats a bit misleading.
LBI Canada is profitable by my knowledge. Thats why we pay $334,768 in income tax, yet this isnt really a "profitable" company because the US division loses that profit. This is a non-cash charge to my knowledge.
Stock Option is even worse this year. While its a form of compensation has has to be counted on the results it does greatly vary year over year. This year stock option has cost us 482,006 over the last 9 months, more than double last year.
If we assume the concept that slotting is a one time fee (but that it always has to be supported with rebates) we can assume that at least two million dollars of earnings is used in this one time basis.
Lets not forget what it costs to be a public company, but on a strickly operational basis this company isnt doing nearly as badly as the stock price seems to indicate.
Please give me one - just one - example of where your beloved McRae, the shareholder deciever and mis-leader, has ever successfully built a brand for the long haul? And you are buying the nonsense about the secret formula? It's just plain silly and childish. Never hear Jones fretting about such nonsense. And they need someone to can all of their products.
Great product -- with so much potential, and the surface has not even been scratched. Mis-leadership is the problem here.
If LBIX used to have 15M shares (before insiders exercised options pushing the outstanding up to 16M), and the stock price used to hover around 1.00, wouldn't that make LBIX a 15M, not 20M, marketcap company?
Now the value is about 40M and so the question arises; are things really nearly three times better than they used to be? At least in '05 they turned a small profit of 4c/share. Now they lose money, not a lot, but a loss just the same.
Maybe LBIX went up because all bev stocks got popular for awhile lifting their tides whether warranted by improving performance or not. Indeed there appears to be an idea floating about that beverage companies in general were (and for some investors still are) pockets of enormous potential and undervaluation (the HANS syndrome). For awhile investors get to vote their enthusiasm for this idea pushing the prices up. Now though they're weighing the actual performance (hey that reminds me of the old dictum 'in the shortterm stocks are a voting machine, over the longterm a weighing machine') and clearly ain't liking what they're seeing.
So maybe it was all a fad. The funny thing is that everyone knows there are fad stocks yet no one believes their own stock is a member. To do so would be to admit having gotten caught up in one. Kinda embarrassing. Otoh if you can't be honest with yourself what chances do you have of making money in a market which values reality over false hopes and stubborn wishes?
Slim to none.
<<<Now the value is about 40M and so the question arises; are things really nearly three times better than they used to be? At least in '05 they turned a small profit of 4c/share. Now they lose money, not a lot, but a loss just the same>>>.
That's NOT the question. The question is will True Blue be successful within 2-3 years? If it will, be the current loss is meaningless. Your analysis explains why you're short Jsda. Anyone just focusing on the trailing PE, P/S, etc. would think it's a terrific short. The reason it keeps rising is that Jsda is transforming itself, already achieving 25% penetration (compared to 2% in '06) for the national roll-out of cans, with pure cane sugar as an extra added attraction. The market, including the PIPE purchasers, is convinced that they'll pull it off, that Van Stolk is a branding genius and it will end with a huge buy-out. You missed this as badly as anything any Lbix long missed. One can only imagine how cocky you would be here if you had been long Jsda and short Lbix, and with good reason. As we stand now, you're 1 and 1 on these 2 stocks, as am I. Fortunately for both of us we have much more riding on the success than the disappointment.
>The poduct is in most places in Canada, including Walmart<
Sage could you back that statement up please? I know LBIX shows Walmart Canada on it's blueberry site, but when I go to www.walmart.ca home page, it shows me 4 pages of juices they carry but no TrueBlue.
I'm sure this is just an oversight on either Walmart's or LBIX's part but with your substantial investment in the Company, it might be something you'd want to clear up.
With all those positives I mentioned above, there are 5 things that concern me with Leading Brands.
1. Anytime the price of True Blue goes over $4 a bottle, which I consider to be overpriced. $3.99 is the peak of what I consider a fair price for a bottle of True Blue and as everyone knows when the product is priced at $3 a bottle, it seems to sell out.
2. The rate of insider selling (the yoga theory, which has clearly won out the last 6 months) I'd love to see McRae buy 25,000+ shares like he did last time the stock was in the high $2's, however I dont believe we'll see that this time around. Insider confidence seems low.
3. The risks of contractions in either bottling, distrubution or True Blue. This is where management has to earn its keep by keeping us growing. It didnt do that in Q3 by losing a major private label business.
4. The US dollar is starting to make a rise. This does not concern me for the time being but it will hurt the Q4 results, and probably be a slight negative to all of next fiscal year. I am bearish the US dollar as a whole but think that a flat dollar remains the best case for a company like Leading Brands. The only positive I can think of is that it should allow LBIX to bring down the costs for True Blue in the states (which seems high at the moment)
5. Eastern bottling and the lenght of time it has taken to get this bottler up and running. The fact its taking this long is rather bearish on the company, however I am with McRae in that I believe True Blue's formula has value. I think its clearly the only way a blueberry beverage will be successful in North America. That does not mean that someone wont come in and copy it in the future but so far I have not seen a single rival product that competes with True Blue on taste and price.
Is the stock speculative? Sure.. However I still maintain that this company has the markings of a 100M+ company. I dont think you can look at the above facts and say 40M is a fair price.
The reluctance of insiders, especially Ralph, to buy here, assuming they don't in fact buy soon, is the greatest concern. Ralph bemoaned the decline to 4 after the Hans earnings -- O.K. but no positive surprise -- as unwarranted. For him to not buy in the mid-2s is not a great testimonial. 25k shares for him is peanuts and he should be buying, if for no other reason than that the stock would quickly rise .50-1.00. making it well worth the expense for all of his old as well as the new shares. I have a feeling that he will be buying soon. Just a hunch as we await the newsletter later this week.
Sage...you always post solid comments..Have you talked or e-mailed lbix investor relations? Right now lbix is so oversold it,s frustrating. I still like the product but management isn,t doing their part to promote it more. We,ll have to wait and see what ralph has to say in the next newsletter.