kezzek Share Friday, January 07, 2011 6:28:57 PM
Re: FUNMAN818 post# 54782 Post # of 54783
I have to disagree with two of your points.
(Your Post continues below)
Here are my answers:
Your answers focus on DKAM. Your first point is valid in regards to DKAM. That's why I am not buying more stock now. Your second point I will answer in a moment.
It's a long held investing adage, if you like the product buy the stock. A long time ago people got rich buying consumer used product companies like McDonalds, Apple, AOL, Microsoft ... people knew and liked the product. The list is endless ... with successes and failures.
NO I AM NOT EQUATING DKAM with these companies, just the concept of liking the product.
However, if you don't like the product, it's tough to buy because how can you believe others want it. Contrary to that though, I don't like SPAM, but I wish I bought Hormel Foods Corp a long time ago. 500% 10-year gain and increasing meaningful dividends even through the recession.
Regarding your second point:
Every product line in any company has a break even point. If you ever worked up financial projections (I have helped grow more than 30 franchise companies and many more franchises, raise millions of dollars in bank / SBA loans, and for 15 years I own my own advertising agency).
So I grant you, DKAM's costs probably exceed revenues to launch Rheingold. In fact, it's only reasonable. However, after fixed expenses are accounted for, the variable expenses remain a percentage of incremental sales increases.
You may not like DKAM's management, hate them even for past transgressions, but setting that aside, the cost of cans, brewing, packaging, and selling expenses have a mathematical break even point.
The brewer, distributor, and retailer make money off the $8 12-pack. It doesn't add up to more than $8 because there are competitors selling beer for even less.
So I assert that DKAM may have a gross profit in the range of 50¢ to $2 per 12-pack.
Then all you have to do is add up all of their operating expenses including debt, and see how many cases they have to sell to break even. That's why I care so much about re-orders. Establishing a revenue baseline is critical.
They may have to sell 2 million cases to break even. When they show that, non-penny investors will seek out the stock.
If they cannot establish a re-order baseline, the company is done.
Quite frankly, neither you or I know if it will happen. That's what this gamble is all about right now.
The only difference is now DKAM has a product consumers are buying. If they don't continue to re-purchase the product, the company is done. If they continue to buy it, the retailers and distributors will buy it. It they buy it, more retailers and distributors in other states will sign on.
You may not like it, but DKAM may become a success in spite of all their previous mistakes.
I'm enjoying my 3rd Rheingold right now, and getting ready to start a party night. So have a good weekend.
Buying stock in a company because you like their product is a horrible idea. A company must be financially sound and profitable to stay in business, and having a good product, or even a great product is no guarantee of that. If you can't sell your product at a profit, no matter how good it is, you'll eventually end up out of business.
Similarly revenues are important only to the extent they are profitable. Many products (including, I believe, Rheingold last quarter) cost more to produce than they are sold for. A negative gross margin is disastrous. Of course sometimes economies of scale can help overcome that, but otherwise, the higher the revenues, the higher the losses. In fact, I think if you track DKAM's history, you'll see that higher revenues almost always resulted in greater losses.
