This is how Myer Holdings Ltd (ASX: MYR) has performed since listing in 2010:
Before dividends, your $10,000 is now worth just $2,350. And if you thought you dodged that bullet, you probably didn't – since it's a fair chance you super fund had some exposure somewhere along the way.
As it stands, I'm doubtful that many ordinary investors have held their investment that long – super investments excluded – meaning that thankfully, their losses will have been mitigated.
A conspicuous exception to this is significant shareholder Solomon Lew, chairman of retailer Premier Investments Limited (ASX: PMV), who has held his shares since their launch and recently indicated his disappointment at Myer's performance.
With the stock at a new all-time low of $0.85 – below their listing price – some will surely be wondering if they can make a quick buck now by speculating in Myer shares.
The answer is no. Readers may have seen an article by one prominent fund manager that was published by popular retail stockbroker Nabtrade, indicating that the value of shareholder equity in Myer could be $1.4 billion by 2020– or $1.70 per share, roughly double today's levels.
This valuation is built on modest forecasts provided by Myer itself, with management targeting 3% sales growth per annum and an increase in sales per square metre of 20% by 2020.
Myer recently tapped shareholders for another $200m in funding to drive a turnaround and chase the above sales growth targets.
However, as the fund manager noted in his article, "Companies tend to assume investment returns will be incremental, but this implies the competition stands still. This is rarely the case, and as such, a proportion of the benefits from reinvestment are usually competed away."
Until investors see signs that Myer can actually attract foot traffic to its stores and achieve investment-grade returns – your cash in the bank probably earns 3% p.a. – the stock is not a buying opportunity.
And if you're tempted to speculate, remember all the investors who were tempted to buy into falling businesses like Fortescue Metals Group Limited (ASX: FMG) and Worleyparsons Limited (ASX: WOR) earlier this year. Fortescue is down 25%, while Worleyparsons has dropped 38%.
Buying a company with a deteriorating underlying business is not a strategy for creating wealth.
