Posted By:
AnonymousThat's right. Here's why.
PSA is a subsidiary of Collectors Universe (CLCT). PSA is about 1/4 of the business with 1/2 being coin grading and another 1/4 other. They have lost an average of $2 million in each of the last 4 quarters plus another $11 million of impairment. Their stock price is $2.70, going down every week. This gives it a market capitalization of $25 Million. But their Cash on Hand is $23 Million. Therefore the company is already valued at just $2 Million, less the Cash. One year from now the Cash on hand will be around $17 Million. Just $10 Million in two years. They haven't made a profit in years and it isn't going to start now, not even with 1/10th point grading.
Also, quantities of graded cards dropped significantly last quarter, to its lowest level in 8 quarters. And this is before the impact of the Economy which is sure to drop it further. Plus, don't forget that card grading is NOT a consummable. Primarily, once a card is graded, it doesn't need to be graded again. Therefore the population has its limits.
So what will happen next? The Company isn't going to just lose money for three years until bankruptcy. With the low stock price, the Board of CLCT needs to do something fast. Liquidation is a possibility. But I would expect that one of the subsidiaries will be sold. That would probably be PSA since it's smaller and can't absorb overhead like the coins division. But who would buy it? Who knows. But think how, not who.
PSA, the card grading division, can still make money in private hands, not having to pay for SEC work, Auditors, SOX compliance, etc. But any buyer would still have to lower costs or raise revenue. What do you think would happen? My thoughts are that someone would capitalize on the PSA name for a couple years by loosening up grading standards. Afterall, who wouldn't pay $100 to get a PSA 8 HOF'er. But this will dilute the Brand and quickly cause a loss of trust and eventually the company's demise. But not before the new owners make some money. Maybe! Afterall, they would have to move the equipment to their own headquarters and start all over. Is it worth the capital investment?
Another reason for their demise is the fraudulent slabs. Who can rely on a PSA slab now? And the scammers will get better, quickly! The future is with a small boutique-like company with tamper-proof holders, hologram flips, Computer grading, and on-line scans of all the cards for comparison purposes. That will be expensive, but there may be a market for it.
The PSA Registry will eventually go away too. The new owners are sure to grade cards like CSA and PRO. Who cares if your T206 is NrMt or better - it may be trimmed. The #1 rated Registry set will be like having 100,000 frequent flier miles...with Eastern Airlines.
I predict this will all happen within 4 years. The sale within 1 year.
Edited the Title Only.