[VIDEO] Is there a good time to invest in the retailers?

Will O'Loughlin:            Damon from Queensland. Hi guys, at what points do you think the likes of Retail Food Group and Myer become cheap enough for a small investment as either a turn around strategy, both with new management, or as a take over opportunity possibly by a private equity-type body?

Shannon Rivkin:            Thanks Damon. We might both have a go at this one. My first comment will be don't necessarily think that down and out stocks can't become stocks that no longer are trading, because in my view, Retail Food Group, which is clearly having massive issues with its franchisees which is its entire business model.... yes, that can be turned around. I have no doubt that the franchise model can work, but sure things can get worse. No doubt about it.

Shannon Rivkin:            And likewise, Myer, to me this might be going out there but if Myer wasn't around in 10 years I wouldn't be surprised. I really think that department store model is very much out of date. I think with obviously online shopping, augmented reality, virtual reality, things like that becoming far more mainstream, I mean who's going to be going into a department store to be buying other people's brands in 10 years?

Shannon Rivkin:            I think there's a little bit of an experience to a department store which is nice, and I don't think that will necessarily go out of fashion so maybe the more up market department stores might have a place. Maybe David Jones over Myer, maybe Myer recreates itself, but I think there's massive risk for this business going forward over the long term. Of course short term you're spot on. There are potential opportunities to see profits made. Yes a new management team or private equity investor or something like that you said. Absolutely could come on and reinvigorate the company. But I much prefer to buy in once that's happened with a little bit of confidence, even at a higher price, than hope it's going to happen on a potentially sinking ship.

Shannon Rivkin:            So that would be my general comment is I wouldn't want to touch these, to say, falling knives, you don't want to catch falling knives is the cliché. It proves right so often and unless you're really talking about a very small speculative amount of money here which you want to trade as a gamble, I think it's best to allocate our money to investments where we have a degree of confidence.

Will O'Loughlin:            Yeah, I think that is, as you alluded to, that is an easy trap to fall into is assuming that a company won't go bankrupt. Or that the share price is now low enough that it will rebound. Look, it might rebound, especially with Retail Food Group. My biggest concern is the fact that they have a significant amount of debt so that alone can kill a company. They're kind of at the mercy of the banks that have lent them this money and there are just problems throughout the business. So, you know, maybe the share price will go up but it's just a huge gamble and generally speaking I sort of don't like taking that kind of a gamble.

Shannon Rivkin:            Yeah. And I might say that your comment is cheap enough versus low enough and the problem with saying cheap is the measures of cheap are low price, earnings multiple, high dividend yield, all that sort of stuff. It relies I guess on estimations of earnings and dividends in the future being as you would anticipate, but the reality is the fact that they're trading these levels is the market saying we don't believe this dividends going to be paid in the next few years. We don't believe the earnings that they suggested is going to come, is what you're going to see. So cheap is very different to low. Yes, you know, for Retail Food Group or Myer becomes a $50,000,000 company at one point. Yes, obviously that's a low price, I'm not saying it's rightfully cheap, but is it a low enough price that who knows they turn things around it could eventually be half a billion dollar company again. So I think cheap and low is a different thing.

 *This video contains general advice only

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