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Is PCGS circling the drain?
lincolnSence
Posts: 409
I recently checked out the annual report and was surprised to see that PCGS is not in such good shape financially. In fact, their 2002 annual report should be out soon for comparison. What would the effect be on PCGS coins if they were to go down the drain - any thoughts?
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I think PCGS would continue or would be bought out by somebody else. But I think PCGS coins can stand alone. They have that reputation. "Buy the coin, not the holder" in case the coin has to stand on its own merits.
Proof Dime Registry Set
Anyway, what stands out to me other than they are not making a profit, is the balance sheet items and a few of the turn ratios, meaning often do they turn over their inventory and receivables. They are important because they indicate how efficient a company is in employing their cash to make a profit. If you look at their inventory turn (if we knew what their inventory consisted of, we could make more sense of it) they lag other services industries. Their turn is 3.41 compared to the industry turn of 23.7, sector turn of 15.99 and S&P turn of 10.45 times. This means that the industry is turning over their inventory 7 time more often a year. Simply this means that cash is not being used efficiently as others (cash pays for inventory purchases).
A/R turn is running 4.37 compared to 7.12 times for the industry, 16.35 times for the sector and 9.35 for the S&P. Again not an efficient use of cash. Receivables are what your customers owe to you, obivously they have chosen to allow their customers to use their cash for a long time (it would be interesting to see a list of their customers).
We do not know what their inventory consists of or the terms their customers get or who they are. These are all items that would be important to know in order to fully analyze what is going on within the company. TDN I doubt whether what Wall Street has to say about the company has much influence as institutional holdings only account for 12.4% of ownership. My guess is that this company is closely held.
As a side note it's not long term debt that you should be concerned with, in fact companies often scramble to increase long term debt and decrease short term debt. This company has plenty of cash to meet it's short term obligations and since it has very little in the way of fixed assets, there shouldn't be long term debt.
What could I glean from all of this, not all that much other than a lot of questions need to be asked, which is always the case when reviewing financial statements. The company saw sales decrease 16% from the previous year (they state mostly due to downturn in the card market). There are only three ways to increase profits, increase sales to more effectively cover overhead, increase prices or decrease expenses. Obviously it's difficult in this business to go out and increase sales, unless you have fewer competitors. Increase prices, another tough one to do as long as their is a viable competitor or competitors out their. They would have to garner a larger part of the market, i.e. increase market share. That might be possible, any one have some ideas? One way to increase earnings is to let the market increase the value of your inventory, perhaps if it's coins and again we don't know what their inventory consists of. Let's say for fun it is coins. If we toughen up our grading standards, especially on moderns, which seem to be the bulk of their submissions, doesn't it make our inventory more valuable? Just a crazy thought.
In a service industry the major costs is usually salaries and wages. I am all for the owners cutting salaries if they are out of line, but we do not know that and we certainly don't want them to cut back on personel. If anything we want them to become more efficient, perhaps be able to look at more submissions on a daily basis. Does this ring a bell?
This was what we call in the banking industry a down and dirty analyzis of the financials and questions we would ask if they applied for bank credit, so take it for what it is worth. To me it raises some interesting questions and points out how difficult their task ahead may lay. Is the company going done the drain hardly. But with the new rules on writing down goodwill & they have a lot of goodwill on their balance sheet (goodwill is the difference between book value of a company and what someone paid for the assets) I don't see large profits looming in the short run.
You are correct about them letting their customers use their money - that's how they turned a profit. B&M would essentially be a large bank, lending the remaining IPO cash to the purchasers and consignors of its auctions. That's why A/R turns are so low and interest earned is so high.
No switch, because NGC is lousy on grading moderns. Way too lax. The saying "Buy the coin, not the holder" is true. However, it is also true, that most of the time the "coin" will be in a PCGS holder. If you have looked at a lot of copper, you know what I mean for sure. Mark
We'll use our hands and hearts and if we must we'll use our heads.
Modern copper, I take? I recently bought a pair of NGC Large Cents because they were nicer than anything in a PCGS holder. I plan to keep them in NGC because I'm tired of trying to get crossovers when the quality of the coins is better than what I see in PCGS holders, but PCGS still refuses to cross them.
They could adapt to NGC's "star" wars designation.
Seriously, I would consider crossovers to PCGS if their $30 submission fee was cut in half. This may be where they screwed up if they have been inflating the weiny out of their fees. Gee, maybe that's why
the moderns subs are out numbering the pre 70's subs......did I get that right?
Leo
The more qualities observed in a coin, the more desirable that coin becomes!
My Jefferson Nickel Collection
Economy cross-over is $15.00
In God We Trust.... all others pay in Gold and Silver!
Lincoln sence They don't need much cash to buy back overgraded copper because they don't overgrade copper anymore.The census has been ,if anything,that they either grade appropriately or undergrade it.
If you had been grading coins at pcgs five to ten years ago,they had to buy back more than they cared to which is the probable reason it is VERY hard to make an ms 68 or impossible to make a proof 70 D cameo Lincoln
David