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Staying Disciplined And Using What Has Worked



November 11, 2010 – Comments (4) | RELATED TICKERS: AMZN , DELL.DL , CAJ

This is a rare blog of something to keep in mind for myself and for those just entering the investing game.  Yesterday, SMART Technologies Inc. (SMT), which isn't even active on this site since it is relatively new to the stock market plunged badly.  It wasn't so much on super bad quarterly results either.  It was actually mostly from bad timing and not meeting the expectations that had been set for this new stock. 

A little background.  SMT provides products like new smart boards that can be used in a work or school setting that have: a whiteboard, SMART markers, a projector connector to the whiteboard with mirror that magnifies the image, and speakers.  We actually have this setup at our new HQ at where I work.  The technology is pretty cool.  It basically bunches up several tools into one package.  If these are able to replace chalkboards across the country in schools, then this company can make a lot of money and be very profitable for shareholders.  However...

There is something that has me question the business model.  And perhaps, that is why the stock has done nothing but slide down since the IPO earlier this year.  With a high of $18/share in mid-July of 2010, the stock has now dropped to $8 and change.  This is where discipline comes and financials move aside.  Use your head.  What do they provide and what are the flaws of the business model?

1) They provide a work/school/presentation solution that is a collection of existing technology

2) The product they provide has no maintenance revenue.  It is a buy-now/use long time product.  This isn't a service that can keep on repeating like computer software.  There are few updates if any.  I mean, when you buy a chalk board, you don't keep replacing it.

3) When they sell this product to a customer/school, that revenue stream is pretty much dead.  Even the markers are designed to be used for a long time.

So with this knowledge, you don't need to look at the financials.  You don't need to understand the ratios or the charts.  This is what SMT does.  The question you have to ask, is can they revise the business model to provide newer solutions?  Can they perhaps design an even better presentation product that might be something companies or schools can lease?  This is what computer hardware companies that provide computers to big companies do.  They have the company lease it and that revenue stream stays constant.  When new computers are made, that hardware company receives more money.

From what I am gathering now, SMT is no doubt a great company providing a new product for the 21st century.  However, aren't there lots of other companies doing the same thing that aren't traded on the open market?  The latest PE ratio with recent revenue per share and stock price is about 7.0.  That is pretty low. 

Instead of chasing the PE ratio, maybe we should instead look at the business model of companies and see if it makes sense first.

Cheers! :o]

4 Comments – Post Your Own

#1) On November 11, 2010 at 4:55 PM, SultanOfSwing (32.39) wrote:

Oh you could probably let your imagination run wild and think of a few tweaks to the business model.  Here are a few that popped out of my head:

- Upgrade the projector to show Hi-Def holographic images of a spinning globe, human or animal anatomy, engineering models, etc.

- Upgrade the communications to support n-way video conferencing.  This would really open up distance learning.  Form a partnership with COCO, DV, or STRA

- Or do what the desktop printer industry did.  Make the ink in the markers go dry real quick.   ...Nah, that would just piss your customers off. But hey, it works for HP!

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#2) On November 11, 2010 at 5:22 PM, mikecart1 (75.48) wrote:

#1) That hologram suggestion is awesome.  I actually didn't even think of that.  I was going by how they currently run - using existing technology and combining it.  I think that suggestion though could be awesome.

Partnerships with communication companies could really be cool too.  Perhaps have some type of portable SMART technology that allows not only employees but students communicate with information in a digital way.

Haha, I didn't think about the ink thing.

What I suggested, and this may sound nuts, is instead of just making SMART boards, how about making SMART tables.  Elementary schools for the most part, or at least where I grew up, had tables connected in teams of 4 or 5 kids.  Have this area be a SMART board where people can do group work that is interactive with what the teacher has on the board or screen.  Or even have the teacher sit at his/her desk, manipulating problems, etc. and have students put their input at their desks.  By making it interactive and fun, you might get much higher participation rates and prevent students from failing out of eduation in the long-run.

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#3) On November 11, 2010 at 8:02 PM, chk999 (99.96) wrote:

I've used Smart Boards. I really hate using them.

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#4) On November 11, 2010 at 8:57 PM, mikecart1 (75.48) wrote:

#3) How come chk999?  We just started using them at work.  We just use them for PowerPoint right now but I am not sure what they are capable of yet. 

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