Novice Investing - Movie Dizziness

Date: Monday 01st 2008f December 2008 05:33:57 PM

Movie Dizziness - 11/10/2005

By: Novice Investing Staff

All is not well in the rental industry. After Blockbuster delivered so so quarter, Movie Gallery (MOVI) reported net loss that missed estimate. The company is now valued at $ 186 Million or $ 5.90 per share after trading as high as $ 35 per share in the past twelve months.

With estimated $ 2.8 Billion of revenue, Movie Gallery is valued at less than 0.07 sales multiple. This is not surprising. The rental business has been under pressure for over a year now. Furthermore, consumers seems to have warm reception towards online rental service such as Netflix Inc's (NFLX).

Buying Hollywood Entertainment last year was viewed as a desperate attempt to keep afloat. Now, it seems like Movie Gallery has dug an even deeper hole. Its latest balance sheet shows a cash in the bank of $ 51 M while long term debt stood at $ 1.16 Billion. Long term debt rose in part due to Hollywood's acquisition. This equals to $ 36.80 of negative net cash ! Even if Movie Gallery can earn $ 3.00 per share consistently, it would take 11 years to erase all that debt.

In eleven years, a lot of things can happen. Google Inc. (GOOG), eBay (EBAY) and Yahoo! (YHOO) did not exist eleven years ago. Now, they are valued at a combined $ 200 + Billion with a profit of more than $ 3 Billion annually.

Investing in Movie Gallery is obviously a dangerous move. This can be classified as a company that is out due to its high debt load and profit concern. We'll see and check back within the next twelve months. Movie Gallery might exist with completely different kind of business models.

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 Movie Gallery (MOVI) or any other securities.

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