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Should I bet $1000 on 14 year olds weird shoes? Should I buy Heelys (HLYS)? September 26, 2007

Posted by deminvest in growth stock, Heelys, HLYS, investment, risky investments, Single stocks, stocks.
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Would you ever wear a shoe with a single wheel underneath?

I wouldn’t survive for more than 10 minutes wearing a pair of Heelys shoes. You?

Anyway… what does all that have to do with Proletarian investors?

The fact is that, since most investors are closer to my age (which I won’t say) than to 14, they seem to have overlooked Heelys the company and HLYS the stock:

Let’s get to the juice:

Trailing P/E (ttm, intraday):4.76

Forward P/E (fye 31-Dec-08) :6.21

can I find anything cheaper on the stock market?

moreover:

Qtrly Revenue Growth (yoy):140.30%

Qtrly Earnings Growth (yoy):204.90%

No company can beat that!

Last but not least… no debt and 53 million dollars cash for a company that has a market cap of 213 million dollars, meaning that one fourth of what I’d spend would be cash.

 

Comments»

1. Eric Nagel - September 26, 2007

The question I have is: what else do they do? The Heelys fad will sometime end…. then what?

2. deminvest - September 26, 2007

That is a good question Eric.
There is three possible answers:

1) Go Global. You may have noticed that the video is German. If the Heelys end up into some teen movie like the skateboard in “Back to the future”, they may become kid’s loved shoes in Japan, Europe and maybe BRIC countries. Heelys could target half a billion kids in a few years… If they could do that with today’s earning margins, it would mean rivers of dollars.

2) Build a cool brand. Those guys already put 50 millions on their bank account. Another few years of “coolness” and they will own more money than today’s market cap. They could use that money in several ways. They may want to invest to build a cool recognizable brand or to develop next cool teen gadgets.

3) they can waste the money trying to pump up a product that nobody wants anymore and end up with a worthless company.

It definitely is a risky business. But a risky business with outstanding numbers is much better than a risky business with lousy numbers… Stock exchanges are packed with risky businesses with lousy numbers.

3. moiliiliquarry - September 28, 2007

The numbers from Q2 are absolutely sensational. But the reason the PPS is down severely is this.

http://finance.yahoo.com/q/ao?s=HLYS

Nothing but downgrades, six in all, since then. Careful here.

4. deminvest - September 28, 2007

Moili, thank you for giving some reasons for Heelys’ apparent bargain!

That is definitely bad news for HLYS, although those recommendations were issued when HLYS was priced around $22. It is under 8 now.
I’ll need to understand better why they downgraded and why the price fell from 22 to 8.

I will be careful, specially considering that there still are India Fund (IFN), Wipro (WIT) Boeing (BA) which are great stocks that we discussed a few weeks ago.

5. deminvest - September 28, 2007

I found out something more:
http://investing.reuters.co.uk/news/articleinvesting.aspx?type=hotStocksNewsUS&storyID=2007-08-08T141018Z_01_BNG172245_RTRUKOC_0_US-HEELYS-SHARES.xml
Apparently retailers are having a hard time selling those shoes… Maybe kids want to wait for next Spring to buy… or maybe they figured out those shoes suck (as Eric was fearing)

6. moiliiliquarry - October 2, 2007

Good point about the drastic change in PPS, Dem. Not a close watcher of HLYS. Just wondering if schools in the U.S. have been banning the shoes for safety concerns. I’ve seen kids all over Honolulu wearing them, but haven’t seen one crash yet.

7. Phill - October 2, 2007

Thanks for the info.
If you follow the development of Heelys shoes over the past 12 months you see a huge improvement in their design. From an ugly bulky sneaker they have progressed into great looking shoes. This together with greater media exposure (and established comprehensive distribution) could be the sole reason why Heelys have become so popular.

But… Are Heelys shoes or skates? They look like shoes, therefore they are considered “dangerous” shoes! … But in fact they are aso skates and for that they are extremely safe when compared with any other skate in the market.

deminvest, I agree with your view that they now need to reinforce their brand and keep coming up with cool new products… very soon!

As for legal liability it is really a question of point o view!

8. Geoff - October 4, 2007

People said skateboarding would be a fad too

9. Jon - October 9, 2007

They are interesting shoes. I thought they would be a fad when my nephew bought a pair 4 or 5 years ago. A year after he bought them, my family went on vacation to Germany and the kids his age were so impressed they gave him money to buy them in the US and ship them to Germany. I didn’t see anybody else wearing them for a long time… then in the last year I’ve seen them start appearing again.

It seems pretty risky since most kids (in the US) already know about them and they haven’t exploded in popularity.

10. Don - October 9, 2007

My kids bought them when they first came out, as well as every kid on the block. A couple of years go by, their feet grew, and guess what, they bought them again! Bottom line is that kids love them. So what if adults don’t get it. Adults rarely do! They are not really a shoe, but a toy, like a skateboard or a Razor (scooter). The company’s financials are strong, we’re coming into the Holiday season. I think it’s a great value right now.

11. M Kessler - March 19, 2008

Yeah Heelys is evolving. Even if the entire economy is going down, people still need to have fun.


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