Wednesday, December 2, 2009

Out of Destiny

Sold out of Destiny Media (OTC BB: DSNY.OB)@ $0.45 today. In the comment thread to the previous post, Paul Price brought up some points I had been thinking about for a while, and which I had discussed with other commenters here on previous occasions. The last two quarters have established Destiny as a viable company, and one that I think may be consistently profitable going forward. But do its future earnings justify its current price? I don't know. As I noted in the comment thread of the previous post, with an inherently high margin business, profits should grow nicely, but they are starting from a low base. At $0.305, having a feel for the stock, it looked cheap ahead of what I expected would be a positive report, so I increased my position by about 50%; at $0.46, I'm not so sure. I took advantage of the high volume today to exit at $0.45.

I still like the company's story, and I expect it will post relatively impressive numbers in its upcoming fiscal Q1 (seasonally, its strongest quarter), but I got the sense from the reaction of some Destiny longs to the guidance the company issued back in October that some of them had overly optimistic ideas about the company's growth potential next year. Some seemed to assume that the sequential growth the company had predicted from Q4 to Q1 would continue at the same clip going forward. They also seemed to ignore that Destiny's fiscal Q2 is its weakest seasonally.

I'd like to see what that Q2 looks like. Depending on those results, I may buy back into this if the price looks attractive relative to my sense of the company's forward earnings prospects.


Anonymous said...

Smart move. Congrats on your profit.

That stock is the direct opposite of a value investment.

Thomas said...

Congrats to your deal!
Re your thoughts... when figuring out the last quarter, in 3Q they made 102,481 $ on 665,829 revenue, thats 15% earnings out of that revenue.
Lets assume they´ll turn over 4 mio $ in the current FY in total, and not factoring in any scale effects, 15% of that means 600,000 $ "real" earnings. I agree, this is still only 1.2 Cent a share - but it´s real earnings. What would the market value them? P/E 50?
I agree, short term there might be bumps (too high market expectations for 2Q), but long term, the story seems not too bad.

DaveinHackensack said...


The investment thesis for DSNY relies on those profit margins growing to be much higher, but longs do seem to be relying on a pretty high multiple to justify the current price. Such a multiple could be justified by phenomenal earnings growth, but I don't have much visibility on that beyond Q1.

DaveinHackensack said...

Destiny reported some good news on its dispute with Yangaroo yesterday. Doesn't effect the valuation concerns, but this is good news nonetheless for the company. Will continue to keep an eye on it.