“At $2.94 per share, the price of Finish Line stock has almost fully discounted the downside risk.”
Whew! The above quote in my column of Dec. 3, 2007, had me choking on my own ink. I was addressing Finish Line’s ill-fated quest to purchase the outstanding stock of much larger Genesco Inc. for $54.50 a share. The thought of trying to digest the $1.5 billion purchase price is reminiscent of Charlie Chaplin’s lunching on his own boots. I predicted that Finish Line would reach an agreement to either pay a ransom to rip up the contract or renegotiate the purchase price. I expressed confidence that CEO Alan Cohen would rebound his own air ball and rescue Finish Line from last summer’s blunder.
He did it. The stock rebounded accordingly, but not before providing me and those who heeded my advice some anxious moments.
I had never owned shares of Finish Line. However, one week after the column appeared, I directed my retirement plan to begin purchasing stock. The price had risen to a little over $4 a share. I bought some at that price, then the stock tanked. I laced up my sneakers and continued to purchase-chasing the price to below $3. Brokers refer to this as trying to catch a falling knife. My average purchase price of Finish Line stock is $3.36 a share.
For a while, the stock traded at less than $1.50 a share. Apparently, the Street did not agree that Finish Line would extricate itself from this debacle. Talk of bankruptcy filled the air. I received e-mails from faithful readers who sent the following comments: “I had the guts, but by the time your article was published the price was already near $4 and it dropped quickly after Genesco’s court victory,” and, “I decided to throw a little money at it; needless to say, it hasn’t gone exactly smooth since the trial results.”
I also received the following blunt assessment: “Mickey, great endorsement on Finish Line, I bought 3,000 shares. I hear they are going down!!!!” Colleagues of a local broker told him my recommendation was dangerous and irresponsible. “Mickey is not a stock analyst,” they said. I felt lower than a snake’s belly.
A few weeks ago, the stock roared back on the news of a settlement agreement. Finish Line and its investment bank agreed to pay Genesco $175 million and 12 percent of Finish Line stock in order to void the transaction. If you invested after reading my column, you have a nice profit in your Finish Line stock. In fact, if you managed to purchase the stock under $3 a share either on its way up or on its way down, your portfolio has started a very difficult 2008 with a significant uptick.
Citing market conditions and the added burden of debt to finance the ransom, some express the thought that Finish Line may still be in jeopardy. I have been asked whether this is a good time to sell. No comment. No more irresponsible and dangerous opinions-but Finish Line has traded for as much as $15 within the last year, and I still have tremendous respect for Alan Cohen.
I have really learned my lesson. You won’t catch me dispensing advice on what stock to buy and when. Ultimately, I was correct, but I felt awful while negotiations were in progress and the stock was languishing. I don’t ever want to put myself in that position again.
No more market advice from me-but, you know, I just bought some Brightpoint. It’s dominant in the wireless distribution and customized logistic services business. At its current price of about $8 a share, the 2008 forward price/earnings ratio is about 8, at least a five-year low. It has traded over $18 in the last year and the company is fundamentally sound. CEO Bob Laikin knows his business. I just gotta think …
Maurer is a shareholder in IBJ Media Corp., which owns Indianapolis Business Journal.To comment on this column, send e-mail to email@example.com.