If you happen to travel to Warsaw this summer and you wander into the local watering hole for a little evening refreshment, chances are the liquor you drink or the cigars you smoke will have been provided by a little-known but long in business Florida-based company, Central European Distribution (Nasdaq: CEDC ) .
William V. Carey, the CEO, founded the company in 1990. Since then it has grown at a phenomenal pace. Not bad for a company that hasn't received much fanfare in the press (though it did get some ink earlier this week when it announced an acquisition of a Polish distributor) and has simply gone about its business making money distributing liquor in Eastern Europe.
The stock has substantial short interest of 22%, as those betting against the stock's rise battle it out against those rooting for it. So, who's right in this instance? The longs who believe the company has unlimited potential in Poland and other post-Communist countries where high-end liquor was once pretty hard to come by? Or the shorts who believe that the company has overpaid substantially for the assets it has acquired, or plans to acquire, as well as believing that the current revenue and earnings growth is unsustainable?
To all those naysayers, I have but one suggestion: If you keep shorting this stock, be prepared to cry in your beer, as the company will continue to grow, albeit organically and not through acquisitions, as in the past.
Why, you may ask, am I so confident? Poland is an emerging market. It is moving rapidly from a state-run monopoly to a system of free trade and competition. Add to that Poland's recent membership in the European Union and you have an industry ready to thrive and prosper.
Poland has about 39 million people. A good comparison would be with my country, Canada, which has a population of 32 million, give or take a few. Poland's annual liquor sales at retail are about $4 billion. At the same time, Canada, which has a smaller population in a much larger area, had retail liquor sales in 2002 of about $11 billion.
Combine this imbalance with a 4% estimated annual increase in the gross domestic product numbers for 2004 in Poland and you have a population ready, willing, and able to open wallets to purchase both domestic and imported wines, beers, spirits, and cigars. Shareholders must enjoy knowing that Eastern Europeans understand the pursuit of leisure just like the rest of us. Na Zdrowie! (A drink to your health!)
Fool contributor Will Ashworth lives in the Great White North, as he mentioned above. He does not own any shares of Central European Distribution.
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