Summer Infant (SUMR) Likely to Stay Wintery Cold

If a company is selling its corporate headquarters in this depressed real estate market, that can't be good a sign.  That's exactly what management at Summer Infant (SUMR) did two weeks ago.  The company raised just over four million in cash through the transaction which would more than quadruple the cash position at the end of 2008.  Still, that’s barely enough cash to cover half a quarter’s SG&A expense.

Despite being positioned in a high growth baby product business, Summer Infant has a highly illiquid balance sheet that is saddled with a $40M debt load and just as much goodwill from overpriced acquisitions in 2006 and early 2008.  That leaves a price to tangible book ratio of over 4 – not quite a steal when retail and manufacturing companies are trading at half that multiple.  While the stock’s 5.4x trailing earnings multiple may look cheap, SUMR has had negative operating cash flows in four out of the past five years.  If cash is truly king, then Summer Infant is far from royalty.

Like most of the market, SUMR shares have been in a sharp downtrend since mid-November and have fallen sharply from the $4-5 range.  Shares saw a v-shaped bounce in early March from a 52-week low of $1.05 and have been in a consolidation period for most of March.  Friday’s trading saw SUMR shares trade ten times normal volume with essentially zero price movement.  Long term technicals and fundamentals, suggest that this resistance may indicate an end to sideways trading and resumption of SUMR’s long term downward trend.