Sotheby's (NYSE:BID)

a new high scoring player liked this nyc company,

Technical Monthly

Sotheby's (BID) deals in the acquisition and selling of fine art, jewelry, and collectibles. Virtually all (nearly 95%) of revenues come from the Auction segment. Here, the company acts as the agent, conducting due diligence to verify the authenticity of the piece, building interest through marketing, setting up and conducting the auction, and handling collection and distribution of funds from buyer to seller. In exchange, both the buyer and seller pay a commission to the company, usually in the range of 16-19% of the selling price. Smaller contributors include a Finance segment (effectively a cash advance business), and Norrtman Master Paintings, a small art dealer. Sotheby's is a global company, conducting over 250 auctions a year across 40 countries, and earning close to 60% of sales outside of the U.S.
One of my favorite aspects of this company is its competitive position as a "big fish in a small pond". 2 players dominate the global fine art commercial market - Sotheby's and Christie's, each with about 50% market share. The firm has even faced monopolistic practice charges in the past. Considering both Sotheby's and Christie's have been in the business since the mid-1700's, the relatively small size of the market, and existing relationships with the few customers for these items (which routinely fetch tens of millions), the firm has an almost impenetrable economic moat against competition. This is a wide moat company, with a capital 'W'.

Another positive is business momentum. Put simply, the market for fine art is red hot, especially from China. Sotheby's recent show in Hong Kong generated over $400 million in net sales, second only to its April auction there. Q2 (ended June) was the firm's best quarter ever - and this is a firm with nearly 270 years of history! Fine art has been and will be an up-and-down market, but it is often difficult to predict the length of cycles here. This hot market could last for some time, and Sotheby's will benefit substantially from it.

The other fundamentals are solid. Cash on the balance sheet, at $666 (!) million, eclipses a debt load of about $477 million. Free cash flow can be lumpy depending on how long the firm holds inventory, but current trends are around $300 million annually. Profits cover interest an acceptable 8 times over.

Valuation, too, looks fairly attractive at $32. Sotheby's will always be a firm that experiences wild revenue swings from year to year, but over the long term the company has proven able to generate operating margins around 30% while growing sales at 5-7% annually. I don't see why this can't continue, given the multitude of new millionaires in developing countries and Asia's taste for fine art. At the same time, current valuation of about 2.5 times sales is below the firm's long-term average of about 3 times.

Given this, Sotheby's long-term value looks to be around $43 per share, about 35% above current trading levels. MagicDiligence rates BID as a solid Magic Formula purchase at current.

There will always be rich people who want to buy or sell rare collectables. It seems to me that there are some significant barriers to entry in this market.

Chinese Wealth.

Economy is recovering, liquidity will be maintained until unemployment rate drops, inflation to follow, commodities will go up as dollar erodes with inflation, BID will prosper on the race to acquire high end tangible investments (property, art, diamonds / jewelry, etc.)

There is less momentum, less volume, and less buying going on. We are in the last part of this rally.

The 1929-1930 equity rally (coming out of The Great Depression) lasted 147 days and the market was up 46%. It has been the same amount of time since the March, 2009 low and we are up about the same percentage. It’s déjà vu (paramnesia), so prepare for a drop of about the same percentage (85%).

bought 'a lot' at average of 9.
But on fwd PE of 33 in a bad year I figure 10 -12 is a bargain. Paying 14 will show a return in two years.
brigid

Will survive recession

Think about how the comming inflation will affect the BID.

Big Dividend, Bigger Moat

This is the rich man's pawn shop. It should do well in a recession. The stock has been hammered by short selling and is yielding 6.8% with plenty of coverage. It is an $8.80 stock with $5.58 per share of cash.

Sotheby's at $12 = ridiculous.
Little hedge fund bears running it down day after day (20%+ short at the end of trading today). I don't think they can bring this company down, like they tried with few financials. Besides, this looks so outlandishly ridiculous that sooner rather than later will pave a way to a bullish stampede. In a very short term the small squeeze should be coming. This is downright insane to be short on this stock at these levels, yet it is going on.

Company has tons of cash, virtually no debt to speak of, auctions rake in more than ever (recession = more Cezannes bought and sold).

It's too good to be true ...
Own it for long-term, short-term, doesn't matter, great upside. No downside whatsoever.

Openned new offices in April. Only big name in-person auctioneer. There will always be rich people jetting off to bid on items too good for the rest of us. Their paying Sotheby's is one way they "prove" that they are better than us.

The market sucks, the economy is getting worse and it's affecting rich people way more than poor people. What happens when sugar muffin needs a new bentley? They have to sell some weird looking art to other weird people. Who does this better than Southeby's? No one.

Sotheby's auctions doing well, lot's of rich people around to buy pickled animals in boxes for millions (I don't get modern art!). P/e very low should provide downside protection.

I bought this today at $26.85 (price after commission).

Hidden Gem