BKS Is A Hot Buy On Black Friday

| November 25, 2011 | 0 Comments

I hope you filled up at your Thanksgiving Day feast…

You’re going to need lots of energy to battle through the sea of humanity kicking off the holiday shopping season today.  That’s right…

It’s Black Friday – The busiest shopping day of the year.

Just the thought of it sends a shiver down my spine… You won’t catch me near a shopping mall or any retail store for that matter.

Sorry, but I’m not willing to stand outside for hours to get a 50 inch flat screen TV for $200.  But if you are, I’m sure you can find some smokin’ deals.  Hey, to each their own.

But that doesn’t mean I’m anti-Black Friday.  In fact, Black Friday could kick-start a revival for one downtrodden specialty retailer.

You see, one of the hottest products this holiday season is tablet computers.

The craze started with the success of Apple’s (AAPL) iPad.  And Apple’s latest version, iPad 2, still dominates the tablet market.  However, there are a few competitors who are starting to eat into their market share.

Amazon.com (AMZN) and Barnes & Noble (BKS) are leading the charge.

They’re combining their popular e-readers (AMZN’s Kindle and BKS’s Nook) with a tablet computer.  The result is a low priced tablet that sells for about half the price of an iPad with loads of digital content.

Simply put, the Nook Tablet is a godsend for BKS.

Remember, we’re in the midst of a once in a lifetime transition from print media to digital media.  And there’s still a lot of uncertainty surrounding the valuations of the new digital media companies.

But we’re starting to get a better idea… and it’s great news for companies like BKS who already have e-readers and digital content.

Earlier this month, the Japanese Internet-service company Rakuten announced they were buying Kobo, an e-reader and e-book company.

The purchase price is roughly twice Kobo’s yearly net revenues.  An analyst for Morningstar said, “investors are speculating that if Barnes & Noble spins off its digital business, it could also fetch that multiple.”

Analysts expect BKS to reach annual revenue of $7.7 billion next year.  But it’s not all digital content.  They still sell lots of books, CDs, and other non-digital products.

The problem is BKS doesn’t breakout how much of their revenue comes from different business segments.  They say it’s for competitive purposes…

But there’s no denying the digital business is the future.  Revenue from digital sales is the growth driver.  And digital sales will continue to increase as they sell more Nooks.

Here’s where it gets really exciting…

If we conservatively estimate $1 billion of BKS revenue comes from digital sales, then based on the Kobo valuation, BKS’ digital business alone is worth $2 billion.

Right now BKS has a market cap of $940 million.  That’s means BKS needs to more than double from its current $16 price.

As a result, BKS’s shares are surging.

BKS is up more than 36% over the last few weeks.  And based on the Kobo deal, there’s still plenty of upside.

The best part is BKS finally pulled back.  The stock got caught up in the massive market-wide selloff on Wednesday.  This looks like a great entry point to me…

You can take a look at BKS’s new Nook tablet for yourself on Black Friday… if you’re brave enough to battle the crowds.  It’s one of the hottest gifts this holiday season for a reason – it’s also why BKS should have a place in your portfolio.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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