Wolf at the door ... let him out (WOLF)
This stock has been trying to get my attention for days, whining at the door, trying to get out and be free to go die in the woods alone.
I guess it's finally time I give Great Wolf (WOLF -- get free real time quote from ADVFN
) his wish. Not a bad concept, seemingly an ambitious and aggressive growth plan, and a truly new kind of product ... all things I like. But they can't seem to get it right, so I've decided to move this tiny bit of cash on to bigger and better things.
I did post a little writeup on WOLF after their last earnings report in August, and I was disapointed but going to hold on for a year. Well, it turns out that was a lie -- I'm more disappointed now, and I'm not going to hold for even another day.
I opened my position in Great Wolf without understanding the company very well, which is usually a mistake -- especially with a recently IPO'd company that hasn't yet settled into the ways of the market. Thankfully, I never added to that position, but I did continue to learn more and more about the company. Frankly, I was on the fence until I saw their latest news.
Great Wolf announced on Tuesday that they will be forming a "joint venture" with a REIT to buy controllling interests in two of their waterparks, with a continuing agreement for WOLF to manage those parks.
Now, this might be a brilliant management move -- certainly hotel chains have been doing this for years, Marriott would much rather make money managing hotels than have to have all their money sunk into the real estate and building ownership. But this smells funny to me for a new, small company like Great Wolf, and it's enough to turn the tide and get me out of the stock -- even though it had shrunk to such a small position that, frankly, paying the commission actually made a dent.
What are the positives for Great Wolf in this deal? The only real plus I see is cash -- they get to pull some of the money they had sunk into these properties out and use it for expansion, and they might be developing a relationship with this CNL REIT to help fund other parks.
The negatives? The main one is that they lose control of their park in the heart of the indoor water park world, and of two of their parks in their proven heartland, the midwest, in order to fund expansion into the rest of the country, where their brand is so far insignificant and the concept has yet to be proven. That means bigger risk.
In addition, this has the scent of desperation to it -- WOLF has had a very rough time in it's first year as a public company, they have not yet shown that they really "get" how to communicate with investors and how to be open, honest and clear in their communications. I certainly don't think they've done anything unethical, but they've made lots of mistakes, especially in providing guidance and using the time-worn weather and holiday excuses for earnings misses.
But really, it looks like those of us who bought in -- and there were probably a bunch, it turns out that this was recommended by a Fool newsletter not long before I bought in, though I wasn't a subscriber at the time -- really overestimated the ability of this company to stand out from the pack and grow.
In the end, what kills WOLF as an interesting investment for me is the fact that they can't seem to compete effectively in areas where there are multiple waterparks, and so they're expanding to areas where indoor waterparks are unknown -- but expanding from a position of weakness. I would be much more comfortable if they were selling an interest in dominant properties or were clearly the best performer in their core areas, but that really doesn't seem to be the case. That calls into question their ability to be a leader long-term, because there's not much to keep the big entertainment companies from opening their own indoor waterparks if the concept does indeed get proven nationwide -- no one is going to be afraid to enter the WOLF's territory if Great Wolf has already shown it has trouble defending it's position.
So, chalk this one up in the loss column ... and start looking for where to put that money. Is it something I already own that looks promising today (and with the bloodbath in my portfolio the last two days, there are a few attractively priced candidates), or is it something new? I'll let you know when I figure it out, and if you've got ideas I'd love to hear them.
Oh, and let's close with the bitter details -- I bought Great Wolf on May 3 at $20.85. Sold today at $9.46. Ouch. At least I won't have to see that red line in my portfolio anymore.
I guess it's finally time I give Great Wolf (WOLF -- get free real time quote from ADVFN
I did post a little writeup on WOLF after their last earnings report in August, and I was disapointed but going to hold on for a year. Well, it turns out that was a lie -- I'm more disappointed now, and I'm not going to hold for even another day.
I opened my position in Great Wolf without understanding the company very well, which is usually a mistake -- especially with a recently IPO'd company that hasn't yet settled into the ways of the market. Thankfully, I never added to that position, but I did continue to learn more and more about the company. Frankly, I was on the fence until I saw their latest news.
Great Wolf announced on Tuesday that they will be forming a "joint venture" with a REIT to buy controllling interests in two of their waterparks, with a continuing agreement for WOLF to manage those parks.
Now, this might be a brilliant management move -- certainly hotel chains have been doing this for years, Marriott would much rather make money managing hotels than have to have all their money sunk into the real estate and building ownership. But this smells funny to me for a new, small company like Great Wolf, and it's enough to turn the tide and get me out of the stock -- even though it had shrunk to such a small position that, frankly, paying the commission actually made a dent.
What are the positives for Great Wolf in this deal? The only real plus I see is cash -- they get to pull some of the money they had sunk into these properties out and use it for expansion, and they might be developing a relationship with this CNL REIT to help fund other parks.
The negatives? The main one is that they lose control of their park in the heart of the indoor water park world, and of two of their parks in their proven heartland, the midwest, in order to fund expansion into the rest of the country, where their brand is so far insignificant and the concept has yet to be proven. That means bigger risk.
In addition, this has the scent of desperation to it -- WOLF has had a very rough time in it's first year as a public company, they have not yet shown that they really "get" how to communicate with investors and how to be open, honest and clear in their communications. I certainly don't think they've done anything unethical, but they've made lots of mistakes, especially in providing guidance and using the time-worn weather and holiday excuses for earnings misses.
But really, it looks like those of us who bought in -- and there were probably a bunch, it turns out that this was recommended by a Fool newsletter not long before I bought in, though I wasn't a subscriber at the time -- really overestimated the ability of this company to stand out from the pack and grow.
In the end, what kills WOLF as an interesting investment for me is the fact that they can't seem to compete effectively in areas where there are multiple waterparks, and so they're expanding to areas where indoor waterparks are unknown -- but expanding from a position of weakness. I would be much more comfortable if they were selling an interest in dominant properties or were clearly the best performer in their core areas, but that really doesn't seem to be the case. That calls into question their ability to be a leader long-term, because there's not much to keep the big entertainment companies from opening their own indoor waterparks if the concept does indeed get proven nationwide -- no one is going to be afraid to enter the WOLF's territory if Great Wolf has already shown it has trouble defending it's position.
So, chalk this one up in the loss column ... and start looking for where to put that money. Is it something I already own that looks promising today (and with the bloodbath in my portfolio the last two days, there are a few attractively priced candidates), or is it something new? I'll let you know when I figure it out, and if you've got ideas I'd love to hear them.
Oh, and let's close with the bitter details -- I bought Great Wolf on May 3 at $20.85. Sold today at $9.46. Ouch. At least I won't have to see that red line in my portfolio anymore.
This article posted by One Guy @ 10/06/2005 10:26:00 PM 1 comments
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