(GuruFocus, October 4, 2009) It is no secret that Investment Guru Mohnish Pabrai is having second thoughts on his investment in regional airline operator Pinnacle Airlines Corp. (PNCL, Financial). As a matter of fact he has been selling steadily, according to GuruFocus Data.
Pinnacle Airlines Corp. operates as regional airline. It has two subsidiaries Pinnacle Airlines, Inc. and Colgan Air, Inc.. Pinnacle provides regional airline capacity to Delta Air lines Inc.(DAL, Financial) , while Colgan services Continental Airlines Inc. (CAL, Financial) through Capacity Purchase Agreements; and provide route extension services for Continental Airlines, US Airways, United, etc through Pro-Rate Agreement.
Mohnish started to buy this stock back in 1Q06 when the stock was at about where it is now. Convinced of its value, he increased his position to over three million shares in 4Q07, but then we saw the stock fell dramatically. The price has recovered some lately to the 2006 level, and Mohnish is selling at a loss.
The stock has only 18 million shares outstanding, so the upswing during the time he bought the stock could be his own doing.
Commenting on the experience he had with the stock, Mohnish stated in his latest shareholder’s meeting :” Based on value metrics it was very cheap. It totally fails the checklist. There is no win/win dynamic in the business ecosystem. Pinnacle would rake in money as the carriers lose a lot of money. ”
Checklist is apparently a tool Mohnish uses to select stocks. I guess you have to be his shareholder and attend his meeting to have a glimpse of the actual checklist.
Just as he remarked, the stock appears to be inexpensive on the first sight, but when put in the context that none of the major customers is making money, one has to question long-term viability of the business model. Using GuruFocus stock comparison tool, I am able to present this table. One point I want to make is that except Mohnish owning Pinnacle, no other Investment Gurus we track has any ownership of the other two airlines. We cover about 70 Investment Gurus.
So it goes the investing worthiness of airline industry.
Pinnacle Airlines Corp. operates as regional airline. It has two subsidiaries Pinnacle Airlines, Inc. and Colgan Air, Inc.. Pinnacle provides regional airline capacity to Delta Air lines Inc.(DAL, Financial) , while Colgan services Continental Airlines Inc. (CAL, Financial) through Capacity Purchase Agreements; and provide route extension services for Continental Airlines, US Airways, United, etc through Pro-Rate Agreement.
Mohnish started to buy this stock back in 1Q06 when the stock was at about where it is now. Convinced of its value, he increased his position to over three million shares in 4Q07, but then we saw the stock fell dramatically. The price has recovered some lately to the 2006 level, and Mohnish is selling at a loss.
The stock has only 18 million shares outstanding, so the upswing during the time he bought the stock could be his own doing.
Commenting on the experience he had with the stock, Mohnish stated in his latest shareholder’s meeting :” Based on value metrics it was very cheap. It totally fails the checklist. There is no win/win dynamic in the business ecosystem. Pinnacle would rake in money as the carriers lose a lot of money. ”
Checklist is apparently a tool Mohnish uses to select stocks. I guess you have to be his shareholder and attend his meeting to have a glimpse of the actual checklist.
Just as he remarked, the stock appears to be inexpensive on the first sight, but when put in the context that none of the major customers is making money, one has to question long-term viability of the business model. Using GuruFocus stock comparison tool, I am able to present this table. One point I want to make is that except Mohnish owning Pinnacle, no other Investment Gurus we track has any ownership of the other two airlines. We cover about 70 Investment Gurus.
So it goes the investing worthiness of airline industry.
| Company | Pinnacle Airlines Corp. (PNCL) | Delta Air Lines Inc. ( DAL) | Continental Airlines Inc. ( CAL) |
|---|---|---|---|
| Number of Guru Holders | 1 | ||
| Combined Weightings (%) | 3.27 | ||
| Number of Guru Buys:Sells (3 months) | 0 : 0 | 0 : 0 | 0 : 0 |
| Number of Guru Buys:Sells (6 months) | 0 : 0 | 0 : 0 | 0 : 0 |
| Number of Guru Buys:Sells (12 months) | 0 :1 | 0 : 0 | 0 : 0 |
| Number of Insider Buys (3 months) | 0 | 0 | 0 |
| Industry | Airlines | Airlines | Airlines |
| Price ($) | 6.83 | 8.32 | 15.62 |
| Market Value ($mil) | 125.28 | 6,470 | 2,156 |
| Revenue ($mil) | 858.41 | 26,116 | 13,715 |
| P/E | 5.64 | 0 | 0 |
| P/S | 0.14 | 0.29 | 0.14 |
| P/B | 0 | 6.55 | 8.18 |
| Yield (%) | 0 | 0 | 0 |
| Payout | 0 | 0 | 0 |
| ROA (%) | 1.95 | -3.16 | -4.24 |
| ROE (%) | 42.61 | -105.63 | -136.87 |
| Operating Margin (%) | 2.53 | -4.82 | -3.95 |
| Net Margin (%) | 3.35 | -9.72 | -6.20 |
| Debt to Equity (%) | 1450 | 1763 | 5115 |
