Two cruise operators that reported today are ALLG (All Leisure) and CCL (Carnival).
ALLG reported (http://is.gd/RMjocU) challenging conditions, and “that full year performance will be below expectations”. “Trading conditions are expected to remain very challenging, especially in view of the escalating conflict in the Middle East and recent acts of terrorism, and the effect these events may have on consumers’ propensity to travel.” Shares are currently down 3.48% to 5.55p.
CCL reported (http://is.gd/ifXGTI) “cumulative advance bookings for the first three quarters of 2016 are well ahead of the prior year”. “As we had anticipated, with less inventory remaining for sale, we have begun to sell at higher prices than the same time last year, particularly close to departure, affirming our expectation of continued yield improvement in 2016.” Shares are currently up 1.58% to 3608p
Those two sets of statements seem at odds with each other.
I wrote about CCL as one of my holdings back in April 2015 (http://is.gd/BMVanD). At the time, it had a momentum score of 90, and a PE of 17, which I said would put many people off. “I think it has the potential to surprise people”. That turned out to be a good call be me, for a change.
I think Greenblatt called it a short in June 2014, on the basis that it had poor returns on capital, it was investing heavily, and wasn’t cheap. The share price was at a low at that point, but then reversed. So what did Greenblatt miss? Well, virtually everything, by the looks of it. Tobias Carlisle diagnosed the problem with the theory in one of his books. He said that some companies will make investments at seemingly inopportune times. Down the road, when returns improve, the management will look like genii as having invested in expansion at exactly the right time.
I have commented in the past that I think a fair proportion of Magic Formula shorts would actually make decent longs.
Although Greenblatt couldn’t have known it at the time, when you see a company with good momentum, you should begin to question your idea about a stock being too expensive, especially if it seems to be in some kind of recovery. CCL is a Footsie company, not an AIM one, so if it has good momentum, the chances are that the market is spotting something.
Taking a look on Stockopedia, I notice that ALLG has had a negative mean ROCE for the last five years. The Z-score is also in the “distressed” region. It looks like it had better pull its finger out as soon as, or else there will be trouble. ALLG has a market cap of £3.6m, although it is down 89% over 5 years, and doesn’t pay a dividend.
ASX 3350 – 0.62%
ALLG 5.55p -3.48%
CCL 3608p +1.58%