Following on from my article earlier today 3 big names I'm avoiding in 2017 is a list of three smaller companies I'm also not keen on in 2017.
The reasons vary, but the conclusion is the same – I don't think these businesses are a buy today:
Ardent Leisure Group Ltd (ASX: AAD)
I like Ardent Leisure's Main Event entertainment centre opportunity. That's what the company will increasingly be about, now that it is divesting most of its other assets. However, I think investors are too excited and are paying too much for this opportunity. With the impact on Theme Park performance and the potential issues that could arise with a big roll-out of Main Event, Ardent is too richly priced for my liking. The recent update revealed that constant-centre sales at Main Event fell 3% compared to the same half last year. Management attributed this to uncertainty around the U.S. elections as well as a difficult macro-environment. They also stated that sales had begun to move positively in recent weeks.
I'm sure that's true, but to my mind it confirms the vulnerability of the business to outside pressures, and suggests that investors would be prudent to demand a better price before buying shares in Ardent.
JC International Group Ltd (ASX: JCI)
We covered JC International at the time of its launch, identifying several concerning issues about the structure of the business and some of the statements that the company made. JC International released its fourth-quarter report today, outlining how the year went. Despite earning $42 million in revenue, the company spent $46 million on staff and a further $5 million on administration, for a total cash outflow of $9 million. This seems unusually high staff expenditure, given the company apparently doesn't have to pay its staff unless they meet appropriate work standards.
There's now just $1.25 million cash in the bank, with the funds from the Initial Public Offering (IPO) already spent. I'm very sceptical of what the company is doing, and now it looks as though there will be a capital raising coming soon. Avoid at all costs, in my opinion.
Bellamy's Australia Ltd (ASX: BAL)
After the results of the company's recent trading halt became known to the market, Bellamy's looks precariously positioned in 2017. With large inventory, lower sales, thinner margins, and a weak financial position with no cash and a reliance on debt for working capital, Bellamy's shares could be in for further falls. There is also the potential for further changes to the board and management, and as yet investors aren't sure what they're getting with the new CEO. Once the excess baby formula suppliers are regulated out of the Chinese market, Bellamy's could have a clearer opportunity. However, at today's prices, and given the issues it is facing, Bellamy's looks expensive.
