Is The Borders Group Stock Trading At A Very Steep Discount?

Borders Group (BGP: 1.45 0.00 0.00%) ended last week up 31.71% and is up roughly 38% YTD. So far this year, the company has had a slew of company specific news, as well as a volatile stock price. The chart below maps out the year to date daily rate of return vs. the daily volume in shares traded. This will provide a timeline of news flow and will give you a visual as to how the share price has reacted to it.

1. On January 13, shares jumped over 20% on no news, most likely the result of a large investor closing a short position, noting the relatively low volume for such a move.

2. Over the next 4 days shares slid over 30%, mainly due to a horrible Holiday Sales report, and a continuous loss of confidence in the brick and mortar book retail business. This price action was well deserved considering the fact that ex CEO Ron Marshall reiterated to shareholders that Borders (BGP) stores were better equipped than ever for 2009’s holiday season on the company’s third quarter conference call.

3. On January 26, shares slid another 15% on the announcement that CEO Ron Marshall resigned from his post after only a year in the top spot.

4. Shares continue to slide as Borders (BGP) announces that it will reduce its corporate staff by 10%. This is roughly the 3rd reduction of workforce made by the company.

5. Shares soared 38% after the company’s largest shareholder William Ackman of Pershing Square Capital Management commented on the possibility of Borders (BGP) going bankrupt, stating it would be a “low probability event”.

6. On February 18, shares rallied over 20% on relatively high volume and no news. Our speculation leads us to believe that the buying was led by Whitney Tilson’s T2 Partners who now owns just over 2% of the float or 1.3 million shares.

This would not be the first time Ackman and Tilson take the same side of the same trade. Tilson also joined the General Growth Properties (GGWPQ: 0.00 N/A N/A) trade alongside Ackman. Both being deep value investors, it doesn’t take rocket science to figure out why they may think alike.

Our view on Borders Group (BGP) is simple. It is a high quality company trading at a very steep discount, even in its temporary state of non-profitability. With cost cutting efforts in place, the company has the potential and the resources to find its way back to profitability.