Max ... The Bear case against ROX:
This sounds almost exactly as the numbers indicate, but it seems as if he only looked at numbers and nothing specific about the products, what's happening to them, and the people running the company.
It seems to me like pretty shallow research. Numbers don't always tell the entire story.
I hate to say I/we are smarter than this guy, but I think I/we know a lot more about ROX than he does.
That said, you all know I agree with him that ROX is over-valued right now, but not for his reasons.
Who ever wrote you hate thinking people are making buying or selling decisions based on him chose the wrong guy to subscribe to ... how prophetic you were.
It's unfortunate you don't need a license to be a blogger, or call yourself and analyst.
Take the Money and Run With Castle Brands (STZ, ROX, BF.B)
Castle Brands Inc. (NYSEMKT:ROX) had a good run, but it's never going to be a Brown-Forman Corporation (NYSE:BF.B) or a Constellation Brands, Inc. (NYSE:STZ). So, let's take what we can get while we can get it.
By James E. Brumley
Oct 20, 2014 8:20:59 AM
This isn't going to be a popular idea, given the recent rally from Castle Brands Inc. (NYSEMKT:ROX) and the bullish crowd it gathered on the way up. But, here goes - anyone lucky enough to have bought ROX at any point between mid-July and Thursday of last week may want to thank their lucky stars and lock in their gains while they can. Not only is there little to no fundamental justification for the current price, Castle Brands shares have dropped a couple of subtle hints that a top is forming.
For those not familiar with it, Castle Brands Inc. is a distiller. It makes and markets several brands of whisky, vodka, rum (and more), and sells them under labels like Jeffersons, Boru, and Clontarf, just to name a few. It's no Brown-Forman Corporation (NYSE:BF.B) or Constellation Brands, Inc. (NYSE:STZ), but it's made a niche name for itself within the distilled spirits world.
There's another big difference between bigger players like Constellation Brands and Brown-Forman Corporation and Castle Brands too.... STZ and BF.B are usually profitable, whereas ROX may or may not be anytime soon - if ever.
To give credit where it's due, Castle Brands Inc. can grow the top line with the best of them. Problem: The bigger the top line gets, the wider the loss seems to get.
The nearby chart of revenue and income going back to 2010 tells the tale. The top line has grown every year from $26 million then to $48 million last fiscal year (ending in June). Yet, the bottom line has worsened, from a loss about $4 million then to a loss of $9 million last year. ROX in some ways has never been better, and in other ways has never been worse. The correlation between an expanding revenue total and the size of the loss, however, has become pretty clear - Castle Brands has to spend more and more to expand, but that growth clearly isn't making the company more profitable. It's making ROX less profitable.
One could try and argue that eventually Castle Brands Inc. will grow itself into profitability, when it's reached enough scale. And, maybe it will. After four years (and going on a fifth) a trend moving in the wrong direction, however, there's too much risk to assume this swing to profitability is going to happen anytime soon. And, even if it did turn profitable, the net profit would be relatively thin compared to the stock's price. ROX shares trade at 5.7 times the company's trailing revenue. Brown-Forman Corporation trades at a much lower P/S of 3.1. Meanwhile, Constellation Brands shares are valued at price/sales ratio of 3.86. There's only so much profit that can be squeezed out of a booze business, so even if ROX turns a typical profit margin of about 13.0%, the stock's price is still going to be too high on a P/E basis.
With all of that being said, it looks as if Castle Brands Inc. may have run about as far is it can run for the time being, using up the last of its bullish fuel in one last, glorious, high-volume burst of strength seen on Friday. ROX yanked itself up and out of its rising trend into a much sharper rally. Problem: Such surges leave little room left for more gains. And sure enough, problems are mounting today. Aside from dipping into the red ink, the stock tried to move again to higher highs but failed to hold into those gains; there don't appear to be any buyers left at this level. Most realistically, the only people interested here are the would-be profit-takers.
The bottom line is, nothing lasts forever. Now is the ideal spot for this rally to come to a close, for several reasons.
