An Insiders’ Guide to the Best Shopping Network Bargains
By
Michael Brush
June 02, 2005
Skeptics often pause at home shopping network channels and wonder who buys
all that stuff.
Since January, investors have been thinking the same thing about the shares
of the company behind the third largest shopping network. That’s ShopNBC,
which is owned by ValueVision Media (VVTV).
Hard selling all year has put a 43% discount on ValueVision Media stock,
pushing it down to $9 in early May from above $14 at the start of the year.
The company is having a hard time finding buyers for its shares in large
part because sales are weak. In early May – around the time the stock hit
its low for the year – ValueVision announced revenue was off 2% in the first
quarter compared to the same time last year.
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But while investors were changing the channel on the stock, high-level
insiders were buying it like discount jewelry in a blow out sale.
ValueVision Media insiders scooped up $461,000 worth of stock in May for
prices between $8.57 and $9.60. The stock recently sold for $9.55.
Buyers included chief executive William Lansing who purchased $350,000
worth, and finance chief Frank Elsenbast. This is a good sign that you might
want to pick up some shares, too. Some of the best insider buy signals come
from senior managers – as opposed to board members – who are close enough to
the action to know what is really going on.
Based on interviews with ValueVision Media and analysts who cover the stock,
I believe insiders see three factors on the horizon that could push the
stock considerably higher within a year.
* More Merchandise First, the company is reaching for a broader
product mix, expanding beyond pricey jewelry and home electronics to sell
more day-to-day items like apparel, beauty care products, DVDs, food and
collectibles. “To cover our fixed cost base, we need to broaden our
merchandise mix and appeal to more customers,” says Elsenbast.
* More Customers ShopNBC has the smallest reach, with a presence in
about 61 million households, compared to around 84 million for Home Shopping
Network (HSN) and 88 million for QVC. But that’s just another way of saying
that HSN and QVC are on their way to hitting their peak reach, while ShopNBC
still has plenty of room to grow. Indeed, in the last year ShopNBC grew by
8% while HSN expanded by 4% and QVC added 1% more households.
Put the new product mix and continued underlying growth together, and you
have the makings of a turnaround that could develop throughout 2005.
“Although this may take a little time, we think Lansing and his group can do
it,” says Robert Routh who covers ValueVision Media for Jefferies & Company.
ValueVision expects 5% sales growth this year, which would already be a step
in the right direction given that sales contracted last quarter.
* Buyout Possible Hardly a week goes by these days without news of
another merger or takeover. Corporations and private investment shops are
flush with cash, and they are using it for strategic acquisitions and to
pick up wounded companies to nurture as turnaround plays of their own.
ValueVision Media – with its brand and reach and $100 million (or $2.79 per
share) in cash – seems like a possible candidate. The stock also looks
cheap, trading for just .55 times sales, or much less if you strip out cash.
Retailers typically trade for one times sales or more.
Who knows if a buyout will ever occur. And takeover potential is never a
reason by itself to own a stock. But if ValueVision Media does get taken
out, it would probably command a 30% premium or more, speculates Routh. He
thinks it would sell for somewhere in the low to mid-teens.
The Bottom Line: This is another turnaround play, and turnarounds
take time. That said, the company has the cash to stick it out, and it is
taking steps to improve the business. Besides, down at these levels the
stock looks cheap. I’d say it’s a buy right here at $9.55 per share.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in
any of the companies listed in this column. Mr. Brush is an independent
columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
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