Thursday, March 15, 2012

IILG: Three things I distrust

I must confess to having a profound distrust of any company whose web presence defaults to the Investor Relations page.

A company does best, in my Buffetesque view, by tending to its core business and thereby creating value for customers. A company that puts investor relations front and center isn't focusing on its business, but rather on its financiers.

Interval Leisure Group (IILG) provides resort time-share and membership-swap services to 2 million families. The Miami, Florida company operates globally, with offices 15 countries and ties to resorts in 75 countries. Yet its home page ( focuses, potentially, on me: The trader in search of a few shares and some profit.

That's a disconcerting disconnect in my book.

IILG had the most bullish chart among 10 stocks added today to the Zacks top-buys list.

Earnings released March 9 beat the consensus by 60%, sending prices soaring from $13.46 at the open to a high of $16.71 today, a rise of 24% in five days.

The stock has been in a sideways trend since March 2010, and the current push has yet to break above that range, which has a high of $17.94 set Feb. 17. The prudent trader will wait for a persistent break above that high before entering IILG.

The upward leap appears to be driven almost entirely by analyst opinion. IILG is a low volume stock -- most days it trades below 200,000 shares -- that is followed by analysts who can be numbered on one hand. Those circumstances give great latitude to the quirks of individual analysis, and that lessens my trust in the consensus view.

IILG has high return on equity of 17.5%, but with a heavy load of long-term debt amounting to 137% of equity.

Institutional ownership is high for such a lightly traded stock, although unremarkable for its bigger brothers. Institutions own two-thirds of the shares and have bid up the price so that it takes $2.15 in shares to control a dollar in sales.

IILG next publishes earnings on May 7. The company pays a quarterly dividend yielding 2.39% annualized. The next ex-dividend date is March 29.

That relatively high dividend goes hand-in-hand with the investor relations homepage. I'm not a value trader like Warren Buffett, but ever since encountering his methods, I've had a distrust of debt-ridden companies who pay dividends. Shouldn't they be retaining that value to pay off their loans and grow the company?

The options selection is poor, open interest is nearly non-existent and bid/ask spreads are ridiculous.

Decision for my account: In my discussion above I identified three areas of distrust: The way IILG handles its web presence, the sparse analyst coverage, and its dividend amid debt. I also point to the terrible options board. I'll pass on IILG for my own account. There's too much not to like.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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