Tuesday, November 10, 2009

Picked up Some RHIE

RHI Entertainment (RHIE) is a small cap name I've spoken about for a good portion of 2009. They reported a bad quarter today, and the stock is off 60%! I took a small position at 1.16 for a couple of reasons:

-Yes the quarter was bad, but keep in mind this is a company whose earnings are tied to the releases they put out (many more coming in next quarter than previous), and their library. Seasonality is a big factor here. I'm not saying this quarter will be outstanding, but it will likely be better. I may not even own the stock by the next earnings release.

-They do have way too much debt for a company this size and are burning through their cash at this point. My bet isn't on the long-term viability and ability to grow earnings, which still remain to be seen. My bet is more on an overreaction by the market, and the possibility to make some money on the return to "normalcy" so-to-speak. Seth Klarman still owns a large stake here (I believe) and he bought when this same thing happened in the spring. Its an opportunity to buy at less than 50% of book value.

This isn't necessarily my style for buying stock, but in some ways it is. Just looking for value out there. Again, its a small position and I'll be watching it closely. Might not be the best one to follow unless you're watching it closely. If it continues to go south, I'll likely dump it quickly.

Disclosure: Long RHIE


Anonymous said...

you are gonna lose all your cash... company is being driven into the ground on purpose

sblax said...

anonymous needs to provide details and sources to make that comment useful...

Michael said...

Agreed with sblax.