Novice Investing - Get Electrified on Circuit City

Date: Sunday 20th 2008f July 2008 12:40:06 PM

Get Electrified on Circuit City - 11/23/2007

By: Novice Investing Staff

A lot of retail stocks had been under pressure lately. Circuit City Stores Inc. (CC) is not immune to that. It is hardly surprising considering that Circuit City is expected to post a loss of $ 0.42 per share for the fiscal year ending in February 2008. Competitors such as Radio Shack (RSH) and Best Buy (BBY) are still going strong as they are expected to make profits this year. Historically, these competitors has a head up on Circuit City on various metrics such as store performance to inventory turnover ratio.

Despite that, we feel that Circuit City may be approaching a good price level to invest in . First off, recent price of Circuit City stock is at $ 5. 81 per share, which gives it market capitalization of $ 979 Million. Meanwhile, it has a positive net cash of $ 380 Million, which is 40% of the market capitalization. This cash figure has decreased further from $ 690 Million last February. With this alarming cash decrease rate, it is therefore to evaluate how cash flow from operations for Circuit City is for the past year. For the past twelve months, fortunately cash flow from operation is a positive $ 272.7 Million. Thus, while Circuit City is expected to lose $ 0.47 per share this year, it will have some cash to ensure its survival.

Looking at our Earning per Share (EPS) estimate for Circuit City shows a similar $ 0.47 loss per share in fiscal year 2009. We assume 10% drop in revenue compared to 2007, a 5% drop in Selling, General & Administrative Cost and a 23.5 % gross margin. While these assumptions are raw, we can see that there is a reason why Circuit City shares plunged from $ 20 to $ 5 per share lately.

We'll see more of Circuit City during this holiday seasons. If they cannot halt the trend of revenue drop, we would see EPS of (- $ 0.47) for the foreseeable future. At the moment, since we cannot foresee Circuit City turning a profit anytime soon, we would pass on the opportunity to invest in Circuit City.

END

Have questions or want to comment on this article? Proceed here

You can view our sample portfolio here.

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Circuit City Stores Inc. (CC) or any other securities.

[Resources] [Forum] [Link Partner ] [Novice Investing Directory ] [ Submit Your Article Here ]