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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Costly start in e-books

August 13, 2010 -  Be the first to comment
Posted by: Pat McKeough Filed in: Aggressive Investing
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INDIGO BOOKS & MUSIC INC. $15 (Toronto symbol IDG; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 24.7 million; Market cap: $370.5 million; Price-to-sales ratio: 0.4; Dividend yield: 2.9%; SI Rating: Average) also hopes to profit from growing sales of e-books. So far, however, e-books are cutting into its profit.

In December 2009, the bookseller launched its Kobo e-book downloading web site. In May 2010, it started selling its own Kobo e-book reader.

In its first quarter, which ended July 3, 2010, Indigo spent $3.2 million on Kobo development, and $1.0 million more on marketing and promotions. These start-up costs swelled Indigo’s losses in the quarter to $5.3 million, or $0.21 a share. A year earlier, it lost $2.8 million, or $0.09 a share. However, Indigo earns most of its profit in its third quarter, which includes the Christmas shopping season, and generally loses money the rest of the year.

Sales rose 5.5% in the latest quarter, to $204.3 million from $193.6 million. Kobo accounted for about half this increase. The rest came from a 1.5% same-store sales gain at its 96 superstores. Same-store sales at the 149 mall-based stores fell 0.7%; online sales were unchanged.

Kobo faces strong competition from Amazon’s Kindle device and the new Apple iPad. However, it costs less than these other devices and can handle more e-book formats.

Indigo is a buy.

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