Novice Investing - Losing Your Sharp Edge

Date: Friday 05th 2008f September 2008 05:31:16 PM

Losing Your Sharp Edge - 05/19/2007

By: Hari Wibowo

Sharper Image Corp. (SHRP) was trading close to $ 8.75 per share when we discussed it in late 2005. Back then, Sharper Image held a $ 3.01 per share in positive net cash versus $ 8.75 per shares in stock price. Thus over 35% of its market capitalization is in the form of cash, which is a decent valuation. The problem is that Sharper Image's continuing loss. Since our last article, Sharper Image had been incurring losses and depleting its cash reserve.

Fast forward in 2007, and Sharper Image is trading slightly higher at $ 9.80 per share. How about profit/loss from operation? The table below summarizes it all. Please note that just like most retailers, Sharper Image's fiscal year is ending on January.

Fiscal Year	2005	2006	2007	2008 (*)
Net Profit	$ 0.71	($ 1.07)	($ 2.40)	($ 1.86)

(*) = estimate

As of end of fiscal year 2006, Sharper Image held $ 53 Million ($ 3.54 per share) of positive net cash on its balance sheet. With expected cumulative loss of ($2.40+$1.86) = $ 4.26 per share, we expect Sharper Image to hold $ 0.72 per share of negative net cash by early 2008. Thus, what seemed to be a solid investment nearly two years ago, had turned into an average investment with some risk of bankruptcy if Sharper Image continues its losing way.

At this point, Sharper Image doesn't show any sign of turning around just yet. The latest news point that same store sales is dropping 11% in April 2007 and the company had just named its new CFO this past week. Of course, on the slightest hint of improvement, Sharper Image shares would probably zoom up before even the profit picture improves.

END

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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 Sharper Image Inc. (SHRP) or any other securities.

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