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Mario Gabelli Buys KSWS - Statistically Undervalued?

March 05, 2013 | About:
Sally Jones

Sally Jones

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GAMCO Investors’ Chairman and Chief Executive Officer Mario Gabelli initiated a long position in K-Swiss Inc. (KSWS), after the company received a buyout offer from E. Land World for $4.75 per share in cash on Feb. 25, 2013. Billionaire investor Gabelli bought 556,000 shares of KSWS at a current price of $4.72, indicating that KSWS was possibly an undervalued stock.

The KSWS deal is not unlike Gabelli’s purchase of Caribou Coffee (CBOU) in December 2012, when the coffee company was offered $16 per share in cash. At that time, Gabelli said of Caribou Coffee, “We think it’s statistically undervalued even at $16.”

Maybe KSWS is undervalued, but here are three severe warning signs issued for KSWS by GuruFocus: K-Swiss has a low Piotroski F-score of 3, declining revenue per share for the last five years and a declining gross margin averaging 6.1% per year. K-Swiss’ deteriorating performance, as viewed in its extended cash conversion cycle, has consistently generated losses for the past five years. Poor performance from business management resulted in high SG&A (selling, general and administrative expenses), as much as 48.4% of total sales in 2012.

What does Mario Gabelli see in the global footwear sector at large and KSWS whose price is close to a one-year high of $4.73, and whose P/S Ratio (0.7557) is also close to one-year high of 0.7557? The answer may be that the athletic footwear industry has experienced growth globally over the last five years and is anticipated to reach $51 billion by 2017. Key factors are major sporting events such as the 2014 FIFA World Cup and the 2016 Olympics in Brazil.

Additionally, the Asia Pacific region is forecast to have the highest growth in athletic footwear retail in the next five years. Why? Increasing levels of household income are injecting the performance footwear market in every economic tier of emerging Asian countries.

K-Swiss competes in the athletic footwear industry against much larger companies Nike and Adidas. K-Swiss purchases lifestyle and performance footwear from independent manufacturers located predominantly in China. For a KSWS and Competitors Comparison of 10-Year Historical P/E ratios:

1362505787358.pngKSWS data by GuruFocus.com

Founded in 1966, K-Swiss Inc. designs and develops athletic footwear for sports use, fitness activities and casual wear. In addition to the K-Swiss brand, K-Swiss also designs and manufactures all-terrain, adventure footwear under the Palladium brand. K-Swiss sells primarily in the U.S., and Asia Pacific, Europe and Africa, to specialty athletic footwear stores, pro shops, sporting goods stores and department stores.

Take a look at the 10-year financials of KSWS:

1362504710759.pngKSWS data by GuruFocus.com

While anticipated global sporting events can present major opportunities for the performance footwear sector, will K-Swiss continue net losses? After the World Cup and the Olympics, maybe we’ll better comprehend the K-Swiss conundrum.

Here’s a look at Mario Gabelli’s recent Top Buys, Top Sales and Top Holdings:



GuruFocus "Real Time Picks" reports the stock purchases and sales that Gurus have made within the prior 2 weeks. The report time lag can be as short as 2 days after the date of the transaction. This feature is for Premium Members only. If you are not a Premium Member, we invite you for a 7-day Free Trial.

About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

Rating: 5.0/5 (1 vote)

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