Thoughts on Build a Bear?

[nightlyraver]

[ QUOTE ]

I haven't quite perfected the buy stock X and then sell it when it drops 5% technique yet... I hope the OP runs good with this strategy. If I buy a stock and then it drops in price, I tend to buy more, NOT sell!


[/ QUOTE ]

Here is how I see it - before you buy a stock you should always perform a risk/reward analysis. Obviously, if you are wrong about the reward part and the stock goes higher than expected, you are very satisfied. In every other case, the analysis is critical - you need to know if the reward will be at least greater than how the S&P500 will perform (or else the trade is pointless), and you need to be cognizant of how much you stand to loose if the stock performs poorly.

This is where I think you are going wrong. If you have concluded that the risk is 5%, and the stock in fact goes down 5%, you seriously need to reevaluate. At this point, you may have to conclude that you were seriously wrong with your analysis and the stock is no longer a buy (and perhaps a sell). Of course, the stock may have also moved down for no good reason at all, and you decide to buy more.

In the case of BBW, the stock did in fact drop by close to 5%, but I doubled down on my investment when it did. This was because I still felt it was a buy - mostly because the whole market moved down because of the sub-prime BS - but I still had a stop loss in effect less than 1.5% from where I made my last purchase. I did this because if it continued to slide I would accept the fact that my assumptions were wrong and the stock had an unknown level of risk from my point of view.

[ QUOTE ]

p.s. Can you please tell me the price of BBW, or any other stock for that matter on 9/15/07? Let me know how certain you are about these predictions, whether it be 30%, 50%, 95%, or 100% certainty.


[/ QUOTE ]

In September it will very likely be priced somewhere between $26 and $35. There is a small chance that the price could hit $40 by then. It is pretty unlikely, IMHO, that the price will fall below $25, but not out of the realm of possibilities.

I don't feel like typing out how I came to this conclusion, but I feel that only some drastic market-wide move, or BBW unexpectedly missing earnings, for these estimates to be wrong.

[Sniper]

[Sniper]

[ QUOTE ]
In September it will very likely be priced somewhere between $26 and $35. There is a small chance that the price could hit $40 by then. It is pretty unlikely, IMHO, that the price will fall below $25, but not out of the realm of possibilities.

I don't feel like typing out how I came to this conclusion, but I feel that only some drastic market-wide move, or BBW unexpectedly missing earnings, for these estimates to be wrong.

[/ QUOTE ]

raver,

On the Downside, BBW has seen 20 in the middle of the last 2 years... why will this year be different?

On the Upside, what would be the catalyst for BBW to suddenly be worth more than it ever has been?

[nightlyraver]

It's simply earning more this year than last year.

In the past, BBW has been priced at a low multiple of 14, and a high multiple of 23, 27, and 33 for the past 3 years. Assuming that BBW hits its earnings, the price SHOULD be 23.66 on the low, and as high as 55.77 on the high (but probably more like 38.87 reflecting a P/E or 23).

One of the major catalysts that I am expecting is the following events to occur: BBW hits its earnings, the price rises off of its current bottow, the shorts (and there are lots of 'em) have to start bring some shares in, there is almost no available float since most shares are either held by insiders who cannot sell or held by institutions who have lent out their shares to the shorts, the stock price gets driven up as people start selling into the strength, $$$.


Thoughts?

[midas]

Night:

BBW is currently trading at 1.2x Rev and 7.5x TEV/EBITDA. This valuation indicates most investors think the company is a good concept but not great, with little room for strong break-out growth. In order to grow BBW you need to open new stores or increase same store sales. You can probably look at their store map and determine how much runway is left for store growth. Then the remaining driver is same stores sales - what do you think management is doing to drive people into the stores? Can they do any licensing deals?

I don't think this company is that sexy unless they land a major licensing deal.

[nightlyraver]

You make an interesting point, but I do not completely understand. How do you make your conclusions given the fact that BBW is currently trading at 1.2x Rev and 7.5x TEV/EBITDA? Is there somewhere that I can go to learn more about interpreting these numbers?

[Karmic]

Sniper is correct as long as you are careful and are willing to take a loss if things move against you. Short term trading can be very expensive or very profitable, it is definately a gamble, but we are on a gambling forum. I am not a day trader but I have been doing short term and option trades quite a bit more this year since I am bearish on the market.

Here is an example I belive CAL to be overvalued when it is above $40 here are all my CAL transactions for the past month or so

02/20/2007 14:09:02 Sold Short X CAL @ 45.75
02/27/2007 15:36:53 Bought to Cover X CAL @ 39.39

These were optons at 40, I chickened out when it came back up.
03/02/2007 15:26:39 Bought X CALOH @ 1.6
03/08/2007 15:34:32 Sold X CALOH @ 2

Again options at $40 hit a trailing % stop but still more than doubled.
03/21/2007 15:58:14 Bought X CALPH @ 1.55
03/27/2007 15:24:28 Sold X CALPH @ 3.4

Should CAL go above $40 again unless something major has changed I will sell again. I have been doing similar things with RYL and GM RYL is a short in the $46 range GM in the $32 range. I don't think you have to predict the market just recognize when certain stocks you know well are priced outside where they should be.

Longer term HD is a stable stock that is a buy at $35 or below and a sell at $40 and above, I'll make you a long term prediction that it will fall below $35 within the next 6 months and be back up above $40 in less than a year and a half. 9/15/07? $34 +/- 2$

[Sniper]

Update...

Aside from day traders who may have been able to scalp a bit, BBW doesn't done much of anything since last month: