What a slow, painful demise.
This article has really ticked me off and I’m not even a shareholder.
Every Tom, Dick and Harry has been openly criticising HMV’s lack of penetration into online sales for years – they were way too late to the party.
Kind of makes you wonder about the type of people who get to run listed companies.
For quick overview of analysts’ reactions to today’s news that HMV have appointed administrators, The Guardian provide this handy breakdown.
Let’s delve into the latest numbers.
The Numbers for HMV
1 Closing price 1.10
2 No of shares of common 430,310,000
3 Market value of common 4,730,000
4 Total non current liabilities incl. warrants 200,000,000 (rounded)
5 Total revenues 873,100,000
6 Net income -36,700,000
7 EPS this year -18.60
8 EPS 3 yr avg Negative
9 EPS 5 yr avg Negative
10 EPS 10 yr avg Negative
11 EPS 3 yr avg growth rate Negative
12 EPS 5 yr avg growth rate Negative
13 EPS 10 yr avg growth rate Negative
14 Annual dividend Nil - cut in 2011
15 Current assets 135,200,000
16 Current liabilities 208,900,000
17 Tangible book value per share -32.09
18 PE ratio Negative
19 Current ratio 0.94
20 Price/tangible book -0.03
21 ROE Negative
22 Net profit margin -9.35
23 Current dividend yield Nil
*Data has not been verified against public filings.
OK. Nothing unexpected from a company in terminal decline.
But would you have bought shares in HMV over the last 5 years?
A quick look at the chart shows that there are multiple times when a value investor would get interested in HMV – each time it dipped in price.
During my research for this post, I wanted to present a comprehensive set of statistical data for HMV to show how it related to the price decline as well as the decline in fortunes for HMV more generally.
Suddenly I came across this:
Yes you can buy shares in companies with weak balance sheets but really? Would you want to? Especially when there WILL BE companies that have strong balance sheets that have experienced price declines among the thousands that are publicly listed.
In my view no further analysis would have been necessary had you begun researching HMV as a value play because of the low current ratio.
A current ratio of 1.50 is about as low as I can be comfortable with, anything less than that and a company will have an exceptionally hard time dealing with future financial shocks.
It’s interesting that HMV managed to improve its balance sheet before its demise but this article suggests that this was due to a rights issue and the granting of warrants to its own suppliers in exchange for better payment terms and prices.
An act like that smacks of desperation – and that was 12 months ago.
Smart investors are value investors who do not accept companies with weak finances into their portfolios, it’s just too risky.