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Tuesday, January 11, 2011

What's Moving Parlux Fragrances (PARL) and Market Leader (LEDR) Higher? Hidden Value Now Coming into Plain Sight

Shares of Parlux and Market Leader are now garnering more attention from the "Market." Five-day view from Google Finance shows PARL up 14% and LEDR up 34% versus the NASDAQ up 1%:

For Parlux, product details, marketing messages, and images of Rihanna -- all of which have been in the works for some time and really should be no surprise -- are giving the Market assurance that Parlux is a viable business, a business which -- per our original view -- arguably should trade at least at net tangible book value of near $5 per share. Of course, seeing is believing for the Market and, now, it can almost smell Rihanna's new perfume.

We first mentioned Market Leader in our 1/1/11 Happy New Year post and hoped to share a bit more color before too long. Our brief thesis, previously shared with a handful of friends in 2010:
  • Illiquid microcap company trading below net cash value that happens to have a growing, subscription-based $15+ million run-rate (MRQ +40% Y/Y) real estate software-as-a-service (SaaS) solution business inside the company. All of this was/is certainly worth something, even with slight cash burn to build the business.
Consider this: venture capitalists strive to find and fund great, new business models and often award rich valuations early in a young company's life (even prior to the development of proven revenue models). YET, in Market Leader, here was an existing, growing operating business delivering a necessary service to real customers. Moreover, the company has a committed management team and excellent board sponsorship (insiders own ~20% of the company per latest proxy statement). To us, the valuation simply didn't make sense given the underlying business trends and franchise value. Thus, we were actively building our position in December by purchasing shares seemingly offered by an abundance of tax loss sellers.

Alas, before we found time to share more details here on CS$, a large deal announced on Monday made the Market realize that, HEY, maybe this company is worth something. We agree.

Although we believe predicting short-term share price direction is impossible and akin to gambling, sometimes "the trend can be your friend" once the Market "wakes up to a story."

Importantly, we continue to see margins of safety in both names.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long PARL, LEDR.

© 2011 Jeffrey Walkenhorst
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