BKS Stock Still Doomed After College Spinoff Plans

Advertisement

Sorry, Wall Street. Barnes & Noble Inc. (NYSE:BKS) stock is still a loser, even after B&N’s decision to spin off its college bookstore business.

barnes noble inc bks stock still doomed after college spinoff plansWhile Barnes and Noble’s business has been a losing proposition for years now, you wouldn’t know by the BKS stock price, which has surged 40% in the last year, crushing the S&P 500 by 26 percentage points.

But don’t be wooed by the recent BKS stock rally (shares were up more than 7% today in early trading as investors cheered the move). You’ll want to avoid this flailing business and the spinoff of its less horrendous college division.

Only Corporate Magic Tricks can Fuel BKS Stock

The decision to separate the college business alone is somewhat surprising, since Barnes & Noble previously announced the spinoff of Nook, its e-reader business, along with the college business. That decision last June similarly sparked a rally in shares, and BKS stock soared 13% in a matter of days.

The idea partly was based on the fact that the Nook division was dragging down the rest of the business. Best just to spin it off and let it suffer independently, went the logic.

But today’s decision backtracks on that rationale, with B&N keeping its regular retail business and the Nook division paired up while spinning off Barnes & Noble Education, the only segment of the business actually growing revenues.

Judging by today’s rally, perhaps BKS should announce another spinoff in a couple of months.

Barnes & Noble CEO Michael Huseby explained how the split will help BKS stock investors (emphasis mine):

“Separating Barnes & Noble Education will create an industry-leading, pure-play public company with more flexibility to pursue strategic opportunities in the growing educational services markets.”

It’s true. Barnes & Noble Education is technically growing, according to its S-1 filing. I mean, in the half-year ended Nov. 1, 2014, revenue grew by 1.4% year-over-year. Couple that in with a 52% slump in net income over the same period, and who wouldn’t want to see a standalone college bookstore business?

In reality, BKS stock has been dead money for years. Neither its traditional brick-and-mortar retail segment or its ill-fated Nook division offer any solace for investors, whose only hope now is to pray for more arcane finance tricks from the doomed bookstore.

Or hope for a buyout, a la Books-A-Million, Inc. (NASDAQ:BAMM).

In the age of digital consumption and e-readers, Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL) have muscled their way into the book business, slamming margins in the process.

BAMM stock, in even worse financial condition than BKS, was languishing below $2 a share until last month, when Executive Chairman Clyde B. Anderson and his family offered to buy all remaining BAMM shares for $2.75 a pop, sending the stock rocketing 44% higher.

The BKS stock price can’t keep soaring forever, and considering the fact that Barnes & Noble’s finest division earned a measly $10.7 million on $977 million in sales in the past six months, the latest spinoff is simply too little too late.

As of this writing, John Divine was long AAPL. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/barnes-noble-inc-bks-stock-still-doomed-after-college-spinoff-plans/.

©2024 InvestorPlace Media, LLC