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Is this Australia’s most expensive company?

You might think that I’m talking about one of our internet stocks like REA Group (ASX:REA) or Carsales.com (ASX:CRZ) – but in fact its Billabong International (ASX:BBG).

Yes, that’s right. Australia’s downfallen king of surf, skate and ski wear, Billabong is trading on a forward P/E ratio of 115 times, according to UBS analyst, Ben Gilbert.

In a note to clients, Mr Gilbert said, “the stock price is not reflecting reality. Adjusting for divestment of Dakine, higher interest costs and dilution from the issue of options and redeemable preference shares, we estimate 2015 financial year earnings per shares would be about 90 per cent below our current forecast at 0.5¢ per share.”

Billabong recently finalised a deal with California-based private equity firm Altamont Capital Partners, repaying its syndicated debt facilities to hedge fund lenders, Oaktree Capital Management and Centrebridge Partners. The deal could see Altamont end up with more than 40% of Billabong, through options and redeemable preference shares, as well as making a hefty profit. Some of the options have a strike price of just 1 cent with maturity in 7 years.

Oaktree and Centrebridge may still make an offer to takeover Billabong, after previously tendering a proposal to Billabong on July 18. Billabong says the proposal was subject to conditions that could not be met as well as being less certain than the Altamont proposal.

Billabong’s shares are currently trading at 56 cents, a sharp run up from a 52-week low of just 12.2 cents. Over the past two months, Billabong shares have climbed more than 300%, compared to the S&P / ASX 200 Index’s (Index:^AXJO) (ASX:XJO) rise of 5.9%. The jump was likely driven by the news that the company had managed to escape the jaws of death, and now had some certainty that it could now focus on restructuring its business, cutting costs and getting back to producing profits.

But it seems that investors have forgotten completely about the potential substantial dilution of their shares, should Altamont exercise its options.

Foolish takeaway

Investors would be foolish (lower-case ‘f’) to buy shares in Billabong now, despite the potential for another takeover bid. That may well be asking for trouble.

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Motley Fool writer/analyst Mike King owns shares in Carsales.com.

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