Pick of the Week: Speculating on the Local Mall Rollercoaster

Unless you have been living under a rock the past 6 months you have seen these things and like me were initially mystified. Most frequently sighted at a local mall or your favorite pizza parlor, these are definately not like the kicks I had when growing up. You know the kind constructed out of a sole, an upper and if you were well advanced and capable a set of fresh laces. These sweet kicks are called Heelys (HLYS), they do not sport any air, a window on the side, or even a pump on top. Nope, far greater a wheel on the bottom that enables any kid that dons them to more or less float and glide across the malls of America. Leaving people like myself speachless thinking "why do they get all the cool stuff", all I had was a pile of dirt, the garden hose and if I got extra lucky a shovel and bucket. Yes the joys of playing with mud.

So what am I driving at. Heelys listed on the Nasdaq, has had a 52 wk range of $30.00 - $40.09, and as of today a current price of $30.48. It holds a P/E of 40.42, P/S of 6.50 and has had a 200 day moving average of $34.47. Net Sales Increased 328% to $188.2 million compared to $44.0 million in fiscal 2005, due to increased awareness and marketing efforts paying off. What does all this mean? Due to the price being near the bottom of the 52 wk spectrum and 12% below the 200 day m.a. there could be a buying opportunity on the horizon. With the recent sell off in the overall market, and a 23% decline in the share price, in the midst of all the volatility in the market, and this being a one product company, I may stay on the side line for a bit until we see some stabilization.

So then where do we go? With all of this being said there are a couple of things working here; 1) We just came off of a holiday season when this was a hot gift amongst the kids which contributed to the large jump in 4th Quarter earnings, 2) Spring is around the corner which could provide for a lift in earnings due to the weakening of the parental wallet caused by kids phrasing "Bobby has a pair mom, why can't I?" 3) Although there were significant sales in the 4th Quarter, I dont think the overall market has reached it's max capacity for Healys, and 4) The shelf life should sustain through most of '07, but look for increased inventories and the movement of product to the sales rack and outlet stores. When this happens the party is already half over, so finish your cake and don't be the last one out the door.

If you are willing to ride a bit of a 'coaster, this may be a buy at the approaching bottom, ride it to the top of the hill only to sell, and move to a short position as this one product company implodes on itself as the market reaches saturation, inventories increase, and Bobby and his friends find the newest latest and greatest fad band wagon to jump on. People the kids of America are bruttle on these companies, this is only the beginning of another Sparkle and Fade company. What ever happened to the Pogo Ball anyways?

*I own no stock in the company mentioned herein, and all information provided is for your own discernment.