Novice Investing - The End of A Movie

Date: Monday 13th 2008f October 2008 06:09:13 PM

The End of A Movie - 07/17/2007

By: Hari Wibowo

Finally the death knell has come forth for Movie Gallery Inc. (MOVI). We talked about it when we were watching Movie Gallery closely for potential development back in April 2007. Despite having refinanced its $ 775 Million debt, Movie Gallery was not out of the wood yet. One bad quarter will threaten the existence of Movie Gallery as a public company.

Lo and behold, Movie Gallery told its lenders in early July that it could not meet financial obligations of its loan, triggering a sharp sell off. This is mainly due to the softer than expected second quarter result. As we have pointed out, one bad quarter will wipe out Movie Gallery's existence as a public company. Shares are now trading at $ 0.60 per share, or $ 19.77 Million. This is for a company that owns 4600 stores in the US.

At the way it is trading, everyone is forecasting a bankruptcy, which is getting likelier by the day. There would be no rescuer for Movie Gallery this time. Competitors such as Blockbuster or Netflix would be better off buying pieces of Movie Gallery's assets in bankruptcy court. For us, we feel that Movie Gallery would probably file bankruptcy before the year ends. Just like the former Delta Airlines saddled with debt, little cash and unprofitable operations, Movie Gallery's bankruptcy is not astonishing at all.

While Movie Gallery may rise 100% or more from current price, you would do well if you invest in companies that hoard positive net cash on its balance sheet, profitable operation and hopefully growing business. You can find some of that types of companies at our sample portfolio holdings.

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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 Movie Gallery Inc. (MOVI) or any other securities.

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