Michael Castor's Bearish Presentation on Genomma Labs: Value Investing Congress ~ market folly

Tuesday, September 17, 2013

Michael Castor's Bearish Presentation on Genomma Labs: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Michael Castor of Sio Capital.  He gave a presentation called "The Accounting Game" and touched on a number of stocks and then recommended shares of Genomma Labs (LABB) traded in Mexico.

Michael Castor's Value Investing Congress Presentation


11% CAGR net of fees over last 7 years.
Worst year down 6%
Doctor. Healthcare fund. 

Stretched valuations: MWI Veterinary Supply (MWIV), Stericycle (SRCL)

Attractive: Cardinal Health (CAH), Select Medical Holdings (SEM)

Unknown substance: Intrexon (XON)

Hidden gem:  Aratana Therapeutics (PETX) ~ "The income statement is an estimate...made by management."  Over the counter pharmaceutical.

Bearish on Genomma Labs (LABB)

Trades in Mexico (LABB) or OTC (GNMLF)
$2.3B USD market cap.
Cash flow less than reported income. $1.3B cash flow vs. $5.2B net income. Where is the money going?
If you believe their accounting on their nail fungus product, 1 in 15 adults would have to be buying a unit to believe it.
Very erratic sales by brand. When asked about it by investors, they quit disclosing sales by line.
AR and WC increasing. Cogs increasing. Cash decreasing. Questionable penetration of products. Erratic sales numbers.
Usually resolved through either acquisitions or restatements. They did try to do an acquisition. If you adjust the accounting, you get much lower EPS.
No cash generation. Limited disclosure.
Valuation? Use 70cents eps, with 10 P/E, $7 peso pt.

Q&A: Herbalife (HLF) opinion? Leans on Ackman view that MLM is not a great business model.

Be sure to check out the other presentations from the New York VIC here.

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