Friday, 6 July 2007

H - Buying Heelys, selling Hewlett-Packard

Buying HLYS (Heelys), shorting HPQ (Hewlett-Packard).

Heelys, trading at $27.75, with a market cap of $750m and a P/E of 20. For a growth stock, in this market, that seems exceptionally rasonable to me. I think a good comparison to this stock is CROX, which just exploded upwards in recent months, partly on strong numbers, and partly I suspect as funds had to start buying it as the stock increased above $1bn market cap initially, and the stock hasn't looked back since. No reason that Heelys can't do the same. In 2006, HLYS has $188m of revenues, having had $44m in 2005 (CROX numbers for 2006 were $355m and for 2005 $109m). This is real growth. Now, for sure HLYS product is definitely faddish, but I am seeing more and more kids wearing them (warning - anecdotal!), and I think there is plenty room to grow from here, especially if the patents they have can stop competitors coming in. And as the brand name becomes more common, maybe they can corner this little market of theirs. This stock could easily double from here and still look ok. here's a company I got long about two and a half years ago when the current CEO took over...stock was half the price, and the market generally hated the company. Today, it seems over-hyped to me. $120bn market cap, 20 P/E, and some of its biggest competitors on the come-back trail (Dell, and also Apple with its move into Windows). I think this stock may have had its day for now.