If you want straight talk on a company, don't listen to the flaks in the front office, listen to the shareholders.
That might be the biggest lesson from today's takeover offer delivered to CircuitCity
Personally, I think it's unfair to blame the public markets for the problem -- after all, if management had the guts, it could simply do the right thing and let the markets do what they may. But there are plenty of wrongs that need righting, something that should be clear to anyone who's followed Circuit City's losing battle with Best Buy
Sure, the stock has been good to those who bought in two years ago. For those who bought the year before, not so much. We've looked at continual, sagging comps. We've also looked at continuing losses. We've even tried to look at the bright side of things. But the fact remains, Circuit City is just plain poorly managed compared to its competitors.
A few key metrics tell the tale. Operating margins are always a fraction of Best Buy's. Cash conversion cycle (CCC)? Last year at Circuit City, it took 52 days to convert its expenditures back into cash. That was 18 days worse than the year before. And though the trend this year is better, Best Buy's CCC was 6.6 days last year, and 2.9 days the year before that. Return on equity? Circuit City's kicking around in the mid- and low single digits. Best Buy puts in consistent visits to the high 20s.
It's really too bad. If Circuit City's management could pull it together, the reward for shareholders would likely eclipse the 18% gain we're seeing today. But given the firm's continued mediocrity, this may be an offer it can't (or shouldn't) refuse.
Both Best Buy and Amazon.com are Motley Fool Stock Advisor recommendations.
For related Foolishness:
- Learn how to force firms to show you the money.
- Is there comfort in the company of other miserables?
- Santa skipped Circuit City.
Should this takeover go through, Seth Jayson pleads with the folks at Highfields Capital to free shoppers from the bum's rush of the extended warranty. At the time of publication, he had no positions in any firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.