yonge dundas square Toronto
Yonge & Dundas Square

By Hardcore Value

It was a beautiful sunny Friday afternoon in Toronto. I walked up Yonge street to the Eaton Centre to pick up a book (no I don’t have an iPad). I took a quick look in some of the retail stores, specifically electronic retailers. I do this most weeks anyways, so I figured it would make for a colourful, light hearted article. Obviously it’s incomplete to judge a business only on customer traffic from just one random sample, but the most recent visit was very indicative of recent experiences.

Customer traffic is extremely important. It doesn’t determine if the stock is a good investment but over the long term there’s a strong positive correlation.

I often see investors using low price earnings ratio (PE) estimates as a justification on why dying retailers are cheap. Sure a PE of 5 means that at current profit levels in only 5 years the investment will have earned its current price in earnings alone and you get the future profits for free. But I think that’s a terrible way of looking at the investment. The biggest problem is that management will rarely go down without a fight (often a costly one for shareholders!). Any excess profits are likely to be used on acquisitions to keep the top line up. It’s in their best interest to keep their jobs, not to do what’s best for you.

Eaton Center

I’ve posted the stores in order of customer traffic today and in recent experiences.

1. Apple Inc. (NASDAQ:AAPL) store (by far and away the busiest)

2. Carrier Branded Cell Phone Stores (Rogers, Telus etc)

3. Best Buy Co., Inc. (NYSE:BBY)

4. RadioShack Corporation (NYSE:RSH)  (The Source in Canada, now owned by Bell Canada)

5. GameStop Corp. (NYSE:GME) (EB Games in Canada)

6. Non Branded Cell Phone Stores


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Disclosure: Long $AAPl