Edelheit versus Buster on PNDMF

Reader N.L. draws my attention to an exchange between Aaron Edelheit ("issambres839") and "buster736" on PNI Digital Media (formerly PhotoChannel; OTCBB: PNDMF.OB) on the Value Investors Club. Below are a few excerpts from this exchange.

Edelheit/issambres839:

I continue to view this as a mispriced growth stock. I can make a credible case that if they continue to grow organically, get Wal-Mart and some of their existing initiatives start to work, in 2011, this stock could easily earn $1 per share. I'm guessing the stock would be close to $15 or higher. The risk/reward in this situation seems very attractive.

P.S. 2010 numbers could be low.

buster736:

With all due respect, In your original write up about PNI in 2007 you had the company earning 1.09 in 2009. The company is going to be lucky to show a profit this year. Now you are saying that you believe they will do $1 in 2011. The company has gotten both Sam's club and costco as you originally postulated, yet earnings have been no where close to what you estimated in the past and your estimates have been pushed out at least two years. What has differed from your model to what the company has actually done (why haven't the earnings been there?) Have transactions been lighter? have you wat to low on your costs? What gives you confidence that this model even scales and you estiamtes will be anywhere close this time?

Edelheit:

You are absolutely correct that my estimates have been wide off the mark from my original report. A couple of things happened that ruined that estimate:

1)They bought a money losing operation in Pixology that they thought they could easily turn around. That was wrong, but it helped get them Costco.

2)They underestimated what it would take to get Costco up and running.

3)CVS uptake has been very slow and most uptake of online uploading versus walking into the store has not met my expectations.

4)The economy fell off a cliff last year and their core biz which was growing organically at 50% plus is now 15-20%.

Those are the main reasons, also my estimating of earnings was a bit high. I don't think looking back I did a good job estimating how expenses would ramp.

That said, I have been saying pretty consistently that I expect $0.25 a share in cash EPS for 2009. This has not changed for some time now. Remember that this excludes amortization.

Also, when I talk about over $1 a share in eps for 2011 or in the future, I try now to be much more cautious, and use words like "could." I mention that number only in the context of winning Wal-Mart.

I encourage you to do your own research and come up with your own estimates. I have made plenty of mistakes in the past year, that's for sure, but I think that I'm trying to my best to estimate a fast growing company that has gone through some growing pains.

I think there is still a tremendous amount of opportunity and the company is now profitable, EBITDA positive and cash flow positive and is growing despite one of the worst economies in decades.

I hope that helps.