Friday, July 31, 2009

From The Mailbag: Glacier Media

Glacier Media (GVC) is a media and information company. The stock has a P/B of just over .5, with a P/E of 7, and a debt to capital ratio of 28%. Sounds cheap right? Not upon closer examination of its balance sheet.

While the company has a book value of equity of $300 million, included in that balance is an asset of $229 million of Goodwill. Also included in that equity balance is $162 million of intangible assets. These facts by themselves don't neccessarily mean that Glacier's book value is worthless; in fact, it's entirely possible that the company's true intangible assets are understated by these values. However, the fact that intangibles play such an important role in the company's book value raises the importance of the investor's understanding of the company.

The fact that there are no hard assets (such as cash/AR/real-estate) to fall back on in case earnings fall through means the company better have a moat of some sort to protect its earnings power. But the investor can only ensure that the company's earnings power will continue into the future if the company falls within the investor's circle of competence. If the investor isn't sure, then this type of investment is not for him: while intangible assets are sometimes worth substantially more than their balance sheet carrying values, sometimes they are worth substantially less. No matter what the company's current earnings may be, to avoid ending up on the wrong side of these two possibilities, the investor should stick to companies which either fall within his circle of comptence, or that have downside protection in the form of hard assets.

Because Glacier Media appears cheap across the standard value metrics, it serves as a perfect example of how stock screens are just a starting point for value investors. Traders and speculators may do no further analysis if a stock screen shows them what they're looking for. Value investors, however, need to understand the business before they can jump into a stock.

Interested in an alternative perspective on Glacier Media, or another stock of your choosing? Our sponsor,, is offering our readers a free analysis of a stock of their choosing here.

Disclosure: None

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