Bidz (BIDZ, $2.98) reports results today after market close. While shares of many retail, jewelry, and auction companies (e.g. Sotheby's -
prior post) have recovered meaningfully since spring -- in the face of mediocre to poor results/fundamentals -- Bidz remains a castaway despite an established online franchise with a high ROIC, variable cost model.
As far as we can tell, nothing has changed and our
core thesis remains intact. As a reminder, we own the company (via the stock) because of the following:
- Jewelry retailing is a good business over time
- Difficult-to-replicate franchise with history of profitability and extremely high returns on invested capital
- Favorable long-term secular trends
- Shareholder-friendly management team (*although we wish all insiders would stop selling, even if in small increments relative to holdings)
- Attractive absolute and relative valuation on current and future earnings potential
In addition, we continue to watch for several potential positive catalysts to remove key overhangs:
- SEC investigation resolved
- FTC probe resolved
- Law suits fall by wayside
Although timing remains uncertain for these catalysts, we think all are possible.
We'll see how results come out today. Without question, the environment for consumer discretionary spending remains weak and the holiday season may be lackluster. However, if Bidz can point to a recovery in Y/Y growth in 4Q09 and 2010 (
per 2Q09 commentary), we think the Market may finally take notice. Further, Bidz continues to invest in areas (e.g. new "ERP" system, new product offerings, international reach) that should bear fruit over the medium- to long-term.
Happy investing,
Jeffrey Walkenhorst
