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Overvalued Surf/Skate/Snowboard Company: ZQK

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June 03, 2010 – Comments (1) | RELATED TICKERS: ZQK

Overvalued Surf/Skate/Snowboard Company: ZQK

Quiksilver (ZQK) stock had a real nice rally from February to May, however I believe that has caused the company to become overvalued fundamentally and now also technically the stock has ran out of upside momentum along with having formed a "head and shoulders pattern" (from April to the middle of May), so the stock can safely be shorted at these levels.

The reason I think fundamentally it is overvalued in the most simplest aspect: I do not foresee this company ever paying a dividend.  So, by discounting these cash flows of $0, we get a present value of ummmm... $0. 

I'm not really saying this company is completely worthless, but yes, here is a company with almost a $600 million market cap, that does rougly $2 billion in revenues, but they also have nearly a billion dollars in debt (and growing), and have not been profitable for the last few years.  Not to mention this is all on top of a decline in revenues over the last few years.  Somehow the average estimates by analysts for EPS in 2011 is $0.24, for a forward P/E of 19, but 1.) I don't believe that EPS number will be realized, and 2.) I think even if they did realize it, that is too high of earnings multiple for a company with this much debt.

The company has some great brands such as Quicksilver, Roxy, DC, Lib Tech, and Gnu, but I just can't be bullish on ZQK in it's entirety when they haven't been able to be profitable with these brands over the last few years.

They release earnings after the bell today.  Estimates are for $0.03, but whether they meet this or even blow it away, I'm bearish on the long term future for investors in this company, so as of today I'm short the stock at $4.59.

RK

1 Comments – Post Your Own

#1) On June 03, 2010 at 5:54 PM, gaybob12345 (< 20) wrote:

Ha, you probably should have waited until the Q2 earnings report was released after the close today.  It clobbered estimates making your short position immediately lose more than 10% of its value.

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