Charles & Colvard Ltd (NASDAQ:CTHR)

CAPS Rating: No stars

The Company manufactures, markets and distributes Charles & Colvard created Moissanite jewels for sale in the worldwide jewelry market.

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4
Player Avatar ikkyu2 (99.38) Submitted: 10/30/2006 4:08:03 PM : Underperform Start Price: $9.01 CTHR Score: +113.28

Marketing sells anything. They tell me the greatly inflated price of diamonds is due to the monopoly/monopsony plus a 150 year old marketing campaign.

But last year when I got my mom to go out and look at moissanites with me, neither of us were impressed. They're yellowish-green and they don't sparkle like diamonds do. They're hard and they can be faceted like diamonds, but there the similarity ends.

I'm betting against this company not because I don't like moissanite - it is what it is - but because it's trying to go up against that famous 150 year old marketing campaign. I think this is their core issue and I think it's a fatal flaw, never mind their financials or their free cash flow or their corporate governance.

Your mileage may vary.

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Member Avatar gravybro (31.16) Submitted: 10/30/2006 9:27:20 PM
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they don't sparkle like diamonds do

http://www.moissanite.com/brilliance_fire.cfm

Guess not. Moissanite looks better to me. More fire and brilliance.

BTW, management does not consider diamonds (or Debeers) to be the competition. CTHR thinks their competitors are luxury goods companies such as Coach.

Member Avatar cmatos72 (< 20) Submitted: 10/30/2006 10:48:01 PM
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must of been the lighting in the jewelry shop. It isnt a secret they rather sell a diamond (more money, more commission). Our moissanite diamond sparkles like no diamond i ever seen and is far from yellow/green.

Member Avatar ikkyu2 (99.38) Submitted: 10/31/2006 4:31:49 AM
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The moissanites I saw didn't look anything like the pictures I've seen of them on the web. They're pretty, though. I enjoyed looking at them. They didn't look like diamonds at all, to me.

Member Avatar ikkyu2 (99.38) Submitted: 10/31/2006 4:47:55 AM
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BTW, management does not consider diamonds (or Debeers) to be the competition. CTHR thinks their competitors are luxury goods companies such as Coach.

Oh boy. Who wants Kool-Aid?

Member Avatar Jim2B (< 20) Submitted: 12/11/2006 5:03:11 PM
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I'm not sure if CTHR is willing to step into the gap, but with the new movie "Blood Diamonds" out it's a great potential opportunity to both spread awareness of their product and the news that there's no "blood" on this product.

Of course I'm sure it'd also tick off deBeers but perhaps that too could be turned to their advantage.

I can't remember the size of CTHR as a company but it's quite small. Perhaps they need to increase the size of the marketing & advertising deparment OR hire some expert advice.

Jim

Member Avatar nackl19 (70.25) Submitted: 1/14/2007 12:06:28 AM
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You're crazy. Moissanite is not yellowish green. Its brilliance and sparkle is that of the highest grade diamond. Most jewellers cannot tell the difference between Moissanite and the best diamonds. A special machine was made for jewellers to tell the difference between the two.

Member Avatar ikkyu2 (99.38) Submitted: 1/16/2007 2:18:07 PM
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You're confused, son. Side by side with diamonds, moissanites are very pretty, but only someone who just fell off the turnip truck would mistake one for a diamond. Cubic Zirconia, which cost roughly 78 cents per carat, are far more similar to diamonds in appearance than moissanites are.

Member Avatar cube52 (60.20) Submitted: 2/5/2007 7:59:59 PM
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I love Moissanite! It has terrific fire and sparkle. None of mine are yellow-ish green.

Member Avatar Jim2B (< 20) Submitted: 2/7/2007 9:07:21 PM
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Moissanite does not wear like the much softer CZ though. A year after purchase, CZ often has a hazy appearance and it's brilliance and fire declines rapidly. Moissanite does not suffer from this problem.

Jim

Member Avatar ikkyu2 (99.38) Submitted: 5/6/2007 11:09:28 PM
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Look. You people. I love you all, but you are missing my point. Moissanite is a shiny jewel that can be made into rings, earrings, necklackes, bracelets.That means they're competing with diamonds. D-I-A-M-O-N-D-S. Did Marilyn Monroe sing "Moissanites are a girl's best friend?" She did not. Did de Beers and company coin the trademarked phrase, "A Moissanite is forever," and plaster it on the side of your local city bus? They did not.When Jennifer Lopez got married, did she show off her fancy pink Moissanite? No, she did not. She wore a fancy pink diamond, as nearly any of the recently engaged women I know could tell you.Has your best friend heard of moissanite? He has not.Moissanites are wonderful, but this company is going up against some pretty heavy - and firmly entrenched - artillery. I don't believe they can withstand the firepower! Hence - underperform.

Member Avatar ikkyu2 (99.38) Submitted: 5/21/2007 6:15:41 PM
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C C are starting to settle down to a more realistic valuation in my mind. If the share price drops below 4 before the next quarterly earnings report, I may have to end this pick.

The next couple of quarters are going to be key for C C. If management is right and there is a sales niche for moissanite products, competing with Coach and the like, they are going to have to really execute, get relationships in place, and start showing some serious market share growth.

As I've stated, I frankly think they're wrong, and that they'd do better - slightly - to market moissanites as a conflict-free diamond simulant for engagement rings; everyone (all 3 people) I know who owns a moissanite is a middle-income twentysomething female partner in a DINK who opted for a moissanite because she didn't like the ethics or the conspicuous consumption of diamonds.

Member Avatar wilsonbarber (< 20) Submitted: 6/6/2007 5:20:56 PM
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ikkyu2,

Moissanite can "compete" against diamonds. To suggest that it cannot is incorrect. The problem is that the company refuses to properly position and promote moissanite as a diamond alternative targeting middle tier customers.

Management, particularly CEO, Bob Thomas, is insistent to capture the upper tier audience and offer moissanite through the specialty jewelers. This approach has retarded awareness and acceptance of moissanite.

Moissanite is not a diamond stimulant having more fire and brilliance than a diamond for 1/10 the price. However C&C is reluctant to promote moissanite true value proposition because then they would not win over the specialty jewelers.

The problem is not the product but management's failure to mass market moissanite through the middle-tier retailers. JCPenney, Kohls, Sears desire to sell moissanite but C&C is not doing enough on their part to widely promote moissanite to average middle tier customer who would love to have a piece of fine affordable luxury.

In other words, what you really mean to say is that “moissanite cannot compete against diamonds in the high-end luxury market.” Unfortunately that is what Thomas means when he euphemistically says he’s “building a brand category” because he wants moissanite positioned as high-end specialty luxury.

However moissanite can compete well extremely against diamond if C&C widely promoted moissanite to average middle class folks based on its quality and price as gifts, engagements, eco-friendly, etc. The reason why moissanite will do well among the middle tier stores is that these venues limits the price points of the diamonds they offer because they cater to average folks. People who really want a diamond don’t go to JCP. Therefore C&C is missing the huge market potential for moissanite among the middle-tier.

Thus what you see are the results of management's awful marketing and positioning of moissanite and their insistence to run C&C not as a public growth company but like a private specialty wholesaler.

Member Avatar ikkyu2 (99.38) Submitted: 6/7/2007 4:25:09 AM
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Well I couldn't agree more, wilsonbarber.I hope I don't give the impression I have a hate on against moissanites. I am an old rock hound and an amateur chemist and I find the idea of furnace-grown gem-grade silicon carbide to be quite delightful. In fact on a purely emotional level I have to say I wish that C&C would do a little better job of getting the word out in the right way.

Member Avatar wilsonbarber (< 20) Submitted: 6/8/2007 10:32:36 PM
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ikkyu2,

I spent the better part of the past two years dealing with basher who targeted the product. Doing that threw off may analysis of C&C. I did the requisite DD and overweighted their balance sheet and "conservative" approach. That was a huge mistake. Also the problems with Finlay and K&G stemming from the Fed/May merger coincided with their guidance misses. This gave the impression that the problems were short term. I unfortunately help to make excuses for the company that then was quoted by Motley Fool. However after the poor showing from 4Q I had to reassess that analysis.

My wife suspected that the problems with C&C was with their marketing and that was confirmed from her direct conversations with CMO Dennis Reed. It was from the results of that phone call that we then produced a presentation that we sent to management in February to urge management to change their marketing strategy. You can see the presentation on Google Video -- "A Star Is Reborn". It spells out the problems with CTHR marketing.

When you look deeply at CTHR marketing strategy you realize this has been an ongoing problem for years. C&C positioning of moissanite is based on CLASS. It's rather insulting and foolish and costly. They desire to market to a narrow upper class segment and as you have correctly observed, moissanite cannot win the high-end. That domain belong to diamonds. Unfortunately they were able to conceal that bias because after the company faced near bankruptcy the company and the stock was depressed.

The irony is there entry into the middle-tier department store revealed the contradiction of their faulty marketing strategy. This is what many longs missed. Longs naturally assumed that the company would naturally expand moissanite in the middle tier market. Management, unfortunately has consistently used ambiguities whereby longs have made incorrect assumptions. One of their famous is "self purchasing women". But that is meaningless because any women can make a "self-purchase". However Thomas exposed his class biased during the pathetic 1QCC when he asserted that his ideal customer is high-end women "who can afford to buy" moissanite. It is clear to me now that CTHR won't turnaround until there is a housecleaning of the management and the board of directors.

I have grave doubt whether C&C will meet 2Q expectation. In addition there were contradictory marketing strategy expressed during the recent shareholder's meeting leaving investors more confused. The VP of sales said one thing and CEO Thomas said another. Any marketing changes IMO won't be reflected on the top line until February 4Q report. It's a real shame.

Member Avatar ikkyu2 (99.38) Submitted: 9/10/2007 1:28:34 PM
Recs: 0

Still overvalued at $4. Profit margin a "stunning" 7% on gross margins of 70%, earnings shrank 50% last quarter compared to same quarter year prior; and return on equity and assets a "sparkling" 3%. Either they're not running this like a real company, or there's some fundamental flaw in their model - I don't care which. They'd have to beat next quarters earnings' estimates by 300% to make this stock suddenly look valued correctly to me at $4 - and have they been beating estimates? No, they have undershot them for the past 7 quarters, very consistently. Why should it change now?

Also, some of the capitalization numbers look funny, suggesting to me that the board is issuing more stock, although I'm not enthused enough to go digging in the balance sheet to find out. Anyone know? A dilutive board would be the cherry on top of this steaming mud pie.

I was also surprised to find out that the Company's moat - its patents - mostly expire in 2015. They're not doing a very good job of extracting value out of them, and what happens when they do expire?

If you're still holding this dog, do yourself a favor and sell it. Better yet, since you're in the unfortunate position of owning it, sell a covered short.

Member Avatar ikkyu2 (99.38) Submitted: 10/24/2007 12:35:49 PM
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http://biz.yahoo.com/bizj/071024/1539543.html?.v=1

That's today's (10/24/07) earnings release. The big story is that revenue, which was predicted to be $12 million, was really only $6 million. This is after two years of a lot of hot air talk about aggressive changes in marketing, roll-outs, partnering with retailers, positioning advertisements, et cetera.

I've seen enough. The question is no longer when will management make a profitable go of this - they've missed earnings now for 8 straight quarters. The question is what is the burn rate now and therefore when does this concern go into receivership.

I'm sorry to say so, too. I still think moissanites are pretty cool.

Member Avatar ikkyu2 (99.38) Submitted: 4/12/2008 12:25:11 AM
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It's getting close to HAMMER time.

Member Avatar quakerbogie (< 20) Submitted: 6/27/2008 10:56:55 AM
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I think the store you were in purposely used lighting to dull-down the moissanite. I think there is pressure from the frightened diamond cartel.I own several pieces of moissanite an am thrilled to wear them. That's why I bought stock and why I will hang on to my stock.Go back to the store and ask to see the stones in the sunlight--where they are blinding; Or under incandescent light--where they elegantly sparkle.

Member Avatar ikkyu2 (99.38) Submitted: 11/10/2008 1:38:21 PM
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Ok, this is not time to talk about the relative merits of moissanite. I think we've established that.This is, instead, a time to point and laugh as incompetent management combined with a global credit crisis and worldwide economic catastrophe ram this stock into the ground harder than United Flight 93.Moissanites are among the hardest, most durable mineral crystals created by man. They will outlast the Charles and Colvard corporation by many millenia.

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