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Peter Lynch (Index)
CMG Group
1990-1992
Industry: Exercise Machine/Infomercial
Category: Growth
Context
Whenever someone mentions CML Group to Lynch, he feels unbuyer remorse.
Sells NordicTrack, a living room skiing exercise machine.
Lynch had a NordicTrack in his living room.
In 1990, CMG restructured and NordicTrack composed 90% of it's earnings.
Lynch knew that NordicTrack sales were increasing at a phenominal clip.
The company was opening outlets where people could try the equipment. Prior to this, hundreds of thousands of people bought a $600 product, unseen from a TV ad.
There had to be millions who saw the commercial, but would never purchase an expensive item from a TV offer, but would buy it in person.
An analyst's view was that we were at the beginning of a "fitness-wellness megatrend" and that the potential market from NordicTrack is huge.
Sales increasing at 15-100%, reducing debt, retail expansion.
Lynch's nagging doubt was that the NordicTrack was a fad, not a megatrend.
That people who wanted exercise machines already own one, that they weren't going to buy a spare, that people would get tired of floor skiing and return to Jane Fonda exercises.
Companies give a lot to worry about, but there are genuine worries and there are boogeyman worries.
The bogeyman hasn't come out, you're not sure he's there, but you aren't about to poke around to make sure he isn't.
The bogeyman of the housing crash scared investors away from Fannie Mae, the bogeyman of McDonalds having too many restaurants scared people away.
Instead of doing the homework to put the fears of NordicTrack to rest, Lynch was worrying about the glut of NordicTracks.
If Lynch had visited a store to see the NordicTrack fitness chair, the NordicFlexGold body building machine, the NordicRow, the bike exerciser, and the various advancements in stationary skiing, he would have understood it.
If he had watched people try the machine, maybe he would have understood the importance of retail.
Of the 10m fitness enthusiast households, only 4% owned a NordicTrack. There are also 45m fitness aware households and 31m couch potato households that might start exercising.
Whenever you have a nagging doubt about a company that's doing well, it's human nature to think
you're the only person who feels that way, but the truth is that every other would-be investor is as
worried as you are. The bogeyman that causes you to ignore the good news is having the same effect on
everybody else. The very existence of doubt creates the conditions for a big gain in the stock once the
fears are put to rest. The trick is to put your fears to rest by doing the research and checking the facts--
before the competition does.
Why the Company is Mispriced
Alternative View
Result
10x in 22 years.