Dr Mumbo

How the Dick Smith Holdings disaster made a fool of The Motley Fool

motley fool dick smithShareholders in electronics retailer Dick Smith will no doubt be wondering if they’re going to lose all their money after the company went into receivership last night.

Still, those who got their advice from tip site The Motley Fool will no doubt feel comforted that they knew exactly what they were getting into.

What did Motley Fool advise them of less than two months ago?

Apparently the sell-down of Dick Smith shares was “overdone”.

Indeed, burbled The Motley Fool’s Ry Padarath:

“There are several reasons that there is more upside for Dick Smith going forward than downside.

“The first is a sustainable 8% dividend yield, which goes higher if you are able to gross up the dividends. This dividend appears sustainable as the capital expenditure requirements of the company are well flagged and manageable. Also, profits are not expected to fall – remember, the market sold down the company because of lower profit growth, rather than a decline in profits.”

And there was more: “Dick Smith also has scope to continue to grow profits through a store roll-out option. In particular, it has the option to grow its Move-branded store network.”

And more: “It also has one of the best online offerings for any consumer retailer, with an extensive email database of customers, advanced segmentation and tailored offers for customers.”

And yet more: “The company is also adjusting for the falling Australian dollar better than its peers with a well established, high margin, own-brand accessories and hardware product offering protecting margins.”

Ry cheerily concluded: “There is an old investing saying that goes ‘when the time comes to buy, you won’t want to’. In the wake of heavy share price falls, that is exactly the feeling that most investors would have towards Dick Smith.

“But looking past the short-term factors could result in a very Foolish reward for those willing to take the plunge. Dick Smith is a stable stock with a great dividend and growth prospects.”

Sounds great, doesn’t it?

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This piece, by the way, followed one two months previous to that, headlined: “4 reasons Dick Smith Holdings is a better buy than JB Hi-Fi Limited“. According to that advice, “it ticks many of the boxes that make for a great longer-term investment”. And of course, even after the earnings downgrade, Ry felt the price was “too cheap to ignore”.

Gee, thanks for the advice, Ry.

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Still, The Motley Fool is also the site that last year told investors that the reason why agency group STW’s share price had fallen was because of increased competition from outdoor companies APN and Ooh Media.

That’s some quality financial journalism right there.


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