Harry Potter and the Stock Market

Recently I was one of those "aged 8 to 80" fans that stood in line for the seventh and final Harry Potter book. This year, I opted against standing in line for three hours at Borders to save $15 (that's only $5 an hour, people, and I had to work in the morning!) and instead paid full price to a local bookstore. The fantastic part about that was, not only did I support a local business, I simply drove up to the parking lot at 11:55 p.m., and at 12:05 a.m. someone handed me a beautiful, new copy of the book. Yes, I could have done what BostonGal did, and ordered through Amazon (and gotten the book on Saturday) but all in all, $15 was a cheap ticket to a huge party Friday night, and one where taking my 5-year-old didn't garner stares of disapproval. My son and I actually went to three parties on Friday, all of which were free, and he won $5 worth of Harry Potter paraphernalia, so I guess that puts us down to $10 for the night. I'm a hard core fan so it was worth the extra money to me, although I did balk at the $12 I spent on snacks, so I suppose I should revise that total to $22 (or $27) for not waiting until Saturday. Still, I don't think I would have missed it for the world, and it was worth every penny to see kids dressed up as house elves and adults dressed as their favorite characters. It makes my brief foray into the scene of the Rocky Horror Picture Show crowd during my college years seem pale in comparison.

Nevertheless, despite trying to be financially minded, it never occurred to me to look at Scholastic stock during all this. I am buying stock these days but I still don't think enough about the things I use and what would be good to buy. So far my stocks have fluctuated wildly -- the stock I bought via Barron's recommendation is doing well, and the two that I chose (and that I know) are down about $90 between the two of them (roughly 10%). I'm not fussed; I know that stocks are a long-term investment and not a short-term gamble. I have watched relatives take the equity from the homes via loans and gamble it away (literally) on day-trading. I don't anticipate going that route anytime soon! So, despite the warning in this article, Scholastic is on my list of stocks to consider.

Can Harry Potter's Publisher Make Magic, Too?

Sometimes you can take the old Peter Lynch adage about investing "in what you know" a little too far. Take the Harry Potter mania that has been sweeping the Western world since midnight on July 21. That's when fans from eight to eighty dressed up, lined up and paid up ($34.99, full price) for the seventh and presumably final adventure of everyone's favorite schoolboy wizard.

Some 8.3 million copies of J.K. Rowling's Harry Potter and the Deathly Hallows flew off the shelves in the first 24 hours after its release, according to its publisher, Scholastic And it looks like more than one investor in the Barnes and Noble queue figured that shares in Scholastic (symbol SCHL) might make some magic, too.

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Instead of reacting to the hoopla surrounding the final book in the series, investors would be better served focusing on Scholastic's fiscal fourth-quarter earnings, released on July 19th. The company posted a profit of $40 million for the quarter ended May 31, or 93 cents a share, up from $38 million, or 91 cents a share, in the same quarter a year ago. But analysts had expected earnings of $1.02 a share. Result: Scholastic shares sank as low as $33 on July 19 before rebounding to close at $34.21 that day.

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Longer-term investors needn't give up on Scholastic, however. Not including Hogwarts-related earnings, the stock is selling at just 16 times Crum's fiscal '08 earnings estimate -- a reasonable value, especially considering the stock's comparable four-year average price-earnings ratio of 18. FBR's Godsey sees Scholastic trading up to $38 a share over the next 12 months, as the rest of Scholastic's businesses continue to grow modestly -- an indication that there likely is life after Harry Potter, after all.

But for now, savvy investors will resist the urge to transfer their excitement about a great book to an okay stock. You've got plenty of time to read all 784 pages -- and then some -- before revisiting this one.