UnThreaded | Threaded | Whole Thread (35) | Ignore Thread Prev | Next
Author: theGreenMartian Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41629  
Subject: Re: The BMW Screen...er, Method Date: 12/15/2006 9:13 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
When you said saturated, do you mean locally (US based locations)? Or does this also include global markets (at least feasible ones, bigger cities, etc).

Sqft growth was 6% yoy in the past quarter. The 05 annual mentioned that they would open 400-500 stores in the next 5 years. Take it out 3 years, for example, and you are looking at 80-100 stores on a base of 2300, or ~4%. No amount of international expansion, unless something miraculous happens, is going to accelerate this growth rate on a base of 2000+ stores.

A small point on HD - sure, the stock price has risen from the low 30s to 40. You can make a convincing argument that the valuation was understated as indicated by the BMW method or whatever method you want to use. Still, what's happen to cause that rise? Did HD report positive same store sales comparisons in Q2 and Q3? No - in fact, SSS were down 5% in Q3, with Oct the weakest month in the quarter (down 8.7%). So did HD predict a SSS turnaround in Q4? No. So did HD report strong Q3 earnings growth? No - EPS was up 1%. So was average ticket up or was some other metric favorable? No.

Clearly the compression of the sqft growth rate is largely responsible for HD the stock's issues for quite some time because as noted Nardelli and team has successful raised margins to peak levels. So - did the company simply reach a bottom based on valuation and a happy market - and this market has been very happy - moved it higher regardless of the news? Or is the market suggesting that HD's new growth plans are going to be successful, that margins won't fall from the current high levels, that same store sales will re-accelerate next year? Perhaps. However, this is a hard sell.

So, does this invalidate the gain that anyone had buying at $33 or $35 with the stock at $40? Nope. Still - you can't argue that there is a convincing change in the fundamentals, and since everything has been happy lately can you really attribute a modest ~15% gain to anything other than fortunate timing? Don't know - but I wouldn't. That doesn't mean I'm right or anything, but it is nice to have an obvious confirmation in the evidence.

If it matters, I am long HD but have been peeling back mainly because I don't feel like I can adequately evaluate the company anymore since they are going into non-store growth areas. This is less a reflection of the company's ultimate success than my own analysis inadequacies, but there are other stocks one can buy so...

Just make money though...(my last post - enjoy this board very much)
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (35) | Ignore Thread Prev | Next

Announcements

BMW METHOD EVENTS

The 2009 BMW Method Conference has been cancelled, due to minimum attendance numbers not being met. We hope to continue the annual BMW Method Conference tradition next fall.

Learn about the first four conferences on the BMW Method Website.

The BMW Method FAQ

BMW Method Website
Annual Conference Videos and Other Resources & Services
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement