Eureka Correspondence

Dick Smith, the Growth First model portfolio and G8 Education.

Dick Smith

What the hell happened today with Dick Smith?

Gilbert

Editor's response: Thanks for your letter. Analyst James Samson has updated subscribers on the share price move in Dick Smith here.

Growth First model portfolio

In the Growth First model portfolio, are you placing stop loss on these equities?

Wayne

Editor's response: Thanks for your letter. Our analyst Simon Dumaresq will update subscribers if and when any of the stocks become sell calls.

G8 Education

I have been following James Samson's articles on G8 Education, in which he speaks so highly of the company.

If the recommendation is to buy this stock, how do you explain why the price has fallen over recent months by some 16 per cent and has fallen again today?

Does someone know something we don't know?

Philip

James Samson's response: Thanks for your letter. At this stage I think it is important to point out that the timing of our recommendation came when the market and the share price were a lot higher than the current level. GEM was $3.50 (now $3.10, a fall of 11.4 per cent), and the market was 5368.6 (now 5084.1, down 5.3 per cent). So, GEM has fallen more than the broader market.

I think that it is important to point out that it is a business that is somewhat divisive in terms of shareholder sentiment, as the stigma of risk in 'corporatised childcare' still remains all these years after the Eddie Groves and ABC learning fallout. That said, we remain of the view that GEM's dividend is attractive, and the company's operating profits have steadily risen such that the company is a good growth prospect. In addition, we keep close tabs on risks in this business, and feel that the perception of risks may be unwarranted. That said, sentiment may take some time to turn around.

I think this one may require some patience, but in the meantime our objective of taking a strong income stream in a growing business should be well achieved.

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