No. of Recommendations: 10
Matt,

If anyone asked me for a role model for how to learn about investing, I'd point them to you.

Thanks for posting this idea. I'm tempted to dig into it. However...

Goodwill + Intangibles = 69% of Total Assets (as of 7/30/2016)

The Goodwill represents the purchase price in excess of net assets of the acquired business. When asked, the company characterized this to the SEC as the future economic power of their workforce and going concern value of their operations. The Intangibles represent mostly their trade names.

Why is the 69% ratio a concern?

If they ever decide these assets are impaired, they'd have to be written off which could *dramatically* reduce the net worth of the business, just given the outlier size of the number. This could then lead to adverse debt ratios and possible violation of their covenants with lenders. In addition, if the business is stressed and they need to raise cash fast, they may not be able to sell these assets quickly, or at all. (AOL Time Warner 2001/2002, for example).

Stated differently: Ollie's has a negative tangible book value, meaning without the goodwill and intangibles, they owe more than they own. Companies with negative tangible book value have difficulty protecting themselves in a recession or against competitors.

Bottom Line: Their balance sheet is very weak right now. I'd give this one some time to see if they can strengthen the balance sheet before getting in any deeper.

Thanks,
Ears
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.