PRGO
Sold PRGO in the low 16's today, could of timed it better and got out in the low 17's, but messed that up as well. Took a huge loss, I guess my tax losses are sky high this year. At least some thing is going up.
Another day another blow up. The amount of blow ups I have had this year is mind blowing, another disaster. I continue to say I used to be good at this. This was one of my larger positions to, so this one really hurt.
Why did I sell? Well with the earnings beat this quarter q4 is a huge miss, there business fell off a cliff late in the quarter, and I didn't get the belief that it was rebounding this quarter either with the horrible guidance. Yes the stock is cheap, but where is earnings going, I was thinking this company would grow top line when I got in about 3% and unlocking adjusted EPS growth of say high single digits on a annual perspective. I was under the understanding we have the turnaround behind us the baby formula business the ship has turned and was good, and we are well on our way to execute a proper and excellent turnaround. what did we get.
A formula business that they wanted to invest a ton of money in for investment purposes, now they have abandoned that philosophy, they were planning to invest 240 million dollars into this business, now they put it up for sale/strategic review, etc? And now we here about international competitors coming in and taking market share, wonder why they want to put it on strategic review. And may be that is just the beginning, they claim they will continue to gain market share, but at the same time international competitors have entered the market and are taking it. So I don't know what to believe there at this point. Further more if they sell it, that will be more of a hit to earnings and top line more (granted what would you get for this business anyways in terms of valuation), we already have the dermo cosmetics divesture that will be a headwind to both top and bottom line, and they have the oral care business up for review as well, this sound like a shrink to shrink strategy, not a fan of it.
Maybe I'm wrong But I think EPS will be down next year, I wonder if the infant formula business is impaired on it's growth prospects on a secular level, not a cyclical level. They keep flip flopping what they want to do first we want to invest 240 million and now we want to sell the business possibly or at least explore strategic review, they are not seeing things coming and seem caught off guard. And the baby formula thing I seen this story before, a company who keep thinking they have things under control and inevitably it keep failing we call that IART, another stock which was an unmitigated disaster for me.
All and all PRGO story has changed here, we have a company who end markets I think have changed a bit for the worse in the short-run, and in some cases like the baby formula business might be impaired a bit in terms of growth in the long run, and they keep want to divest thing possibly the whole business might come under strategic review (Get a bit of exaggeration), selling it by pieces, they say they are committed to the divy so there is a plus, having said that the divy isn't gonna help you on this falling knife. The biggest problem is today they put a lot of question marks in several things.
1) Management credibility
2) What are we gonna actually own? I mean with all these thing under strategic review in the long run. what will be left? what is th potentials earnings of what might be left?
3) Is the OTC market in decline? Probably not, but it might be slower than in the past with people simply buying less.
4) The Baby Formula Business, what is it's prospects and if they do sell it what could they possibly get for it now, not being in perhaps it best position right now.
I think PRGO here could be a possible declining earnings story I question the growth of there markets bit more, but more importantly with all these business under strategic review if they sell will shrink both top and bottom line results, create horrible comps with headwinds for quarters to come, and lets face it there core business the underlying market for whatever reason is having volume issues as well. All and all this stock doesn't deserve more than 6-8 multiple, problem is where is those earnings coming out next year if it $2.50, that could mean FV on the low end if $15. With all these risks and having questions about management here with them being all over the place, the multiple I would want to give on this company is down, I think the growth prospects have changed significantly, which is why I decided to sell take a huge tax loss in the low 16's. Time will tell. All is just my opinion, and I could always be wrong though.
AI
