The market was down today as retail sales disappointed (thanks to the weather, a little something called rampant unemployment, and everyone hoarding cash for the next generation of the fleshlight to be released), food prices continued to increase and spook investors as rising costs pushed 44MM more people in to poverty (though at least 13% of the increase in food costs was caused by Kirstie Alley‘s night out at Sizzler’s all you can eat bar), and Sports Illustrated’s latest Swimsuit issue hit the stands which caused investors’ dip buying trigger fingers to be otherwise occupied (oh wait, what’s that, it’s not 1970 and at the click of a mouse people can easily go to spankwire, meinmyplace, and which all make the Swimsuit issue more irrelevant than valuation is for NFLX shareholders or Valentine’s Day is in Iran?  Hmm.  (And quick digression, but Money McBags hopes you all got his Valentine’s Day heart yesterday)).

The real news though continues to be the scent of inflation which is wafting through the air like the gentle bouquet of a carafe full of Chateau Lafite, only if that Chateau Lafite had been shit in by a homeless skunk who had eaten a week old Arbys roast beef sandwich and a pair of Tila Tequila‘s underwear.  Money McBags has been harping on this for months now as you simply can’t perpetually stimulate the economy without pumping more money in to the system than Charlie Sheen at an AVN Awards show afterparty, and now inflation is starting to rear its ugly head.

As a result, companies are all warning about rising prices and more articles like this one about clothing prices to rise 10% are coming out daily as the media finally figures out that prices can get high off their money supply.  Money McBags listens to a shit load of conference calls during earnings season (well technically he just reads the transcripts because the only thing more boring than listening to a CEO drone on about his/her business for an hour is Network TV) and ~90% of the companies he follows talked about rising costs and in turn raising prices.  Holy Stagflation “Using the Wrong Stat” Man (the wrong stat being core inflation), maybe it’s time to make like Annabel Chong and load up on hard assets while everyone buys the rip.

And inflation is a global issues as UK consumer prices were up 4% to their highest in more than two years and double the Bank of England’s target as the country rushes to stock up on black jeans before the price of denim reaches cockposterous levels.  Also, China’s inflation was up 5% on soaring food prices even though their version of the B(L)S (perhaps the phonetic BRS for them) recalculated the index to give less weight to food costs and more weight to housing costs because “Chinese food prices rising 50% in ten days” headlines were starting to look as bad for the country as Pedobear showing up to a Justin Beiber concert.

As commodities rise and cause rioting in Egypt, Jordan, Algeria, Iran, Bahrain, and casting couches across the world, one can only guess that Bernanke is playing for some kind of Kerr solution to occur (and if Money McBags were in charge, Miranda Kerr would be a frequent solution) and thus have time freeze before hyperinflation wreaks havoc like Silvio Berlusconi at a finishing school.  It is certainly an interesting strategy, and not one Money McBags would have picked, but alas, Money McBags is a simple dick joke writer and not the unelected head of the becoming less free world.

As far as macro news in the US, retail sales rose .3% which was the smallest gain since a drop in June but witch doctors once again blamed the weather for the disappointing number as the weather is now becoming a bigger scapegoat than Waddell & Reed or Steve Bartman and will soon be blamed for other such atrocities such as kidnapping the Lindbergh baby, weakening the levees in New Orleans, and encouraging Chuck Klosterman to keep writing (that is if one considers what he does writing).  In the details, building material and gardening outlets saw receipts down 2.9%, food service and drinking places saw receipts down .7%, clothing and clothing accessories stores saw receipts down .3%, and Lindsay Lohan‘s agent saw receipts down 69%.

In other macro news home builder sentiment remained shitacular as builders must compete with a glut of unsold properties, a shit ton of foreclosures, and stubbornly high unemployment causing fewer people to switch jobs than Manuel Uribe skips meals.  The National Association of Home Builders/Wells Fargo Housing Market Index held steady at 16 from last month with readings above 50 indicating that more builders view sales conditions as good than poor and readings below 20 meaning more builders view sales conditions as fucking poor than really poor.  And finally a report from the New York Federal Reserve showed a gauge of manufacturing in New York State climbed to 15.43 in February as the state produces more paper bags for Mets fans to put over their heads now that baseball season is getting close to starting.

In the market, The Gap was up ~6% after decent comps and after it was announced that Sears Chairman Eddie Lampert has taken a 5% stake in the company in his attempt to run another proud US brand in to the ground.  Also, Fed Ex delivered a crappy quarter as a result of weather and rising fuel prices but the stock was up as investors focus on increased long-term shipping demand as emerging markets continue to emerge and the closing of local businesses ramps up e-commerce.

Finally, Barclay’s was up ~7% on better than expected results proving that even tougher regulations can be manipulated, Deutsche (bag) Borse bought the NYSE for $9.53B and a promise not to fire any of NYSE’s croupier’s, and SIRI reported a loss, though Money McBags was unable to hear the reason why as management was interrupted by a caller yelling BaBa Booey over the response.

In small cap stocks, SAAS traded down at the end of day on decent size volume for them on the same day Money McBags dropped 2.5k words on why he has such a crush on this stock that it causes him to be more tongue tied than Serene Branson.  Also, GKNT got its geek on and shot up ~28% on a 53% jump in revenues.  This is a weird little company and Money McBags actually spent a few hours looking in to it about a month ago and decided to punt on it because they are still burning cash and rely on hitting on trends to sell products (though they do have an audience that is potentially sticker than the floor of a bukkake movie set, so that is positive),  Even with the huge Q the company still had negative EBITDA and earnings for the year, and a bunch of the jump up today had to be short covering, but Money McBags is intrigued because they have shown consistent topline growth.  Definitely put this on a watch list for more work (and put this on a watch list for more jerk).

That said, Money McBags wanted to get to DGIT today as they obliterated estimates and jumped another 7% to close at a price ~$32.50 (and remember Money McBags told you to buy when it dropped under $16 on 8/30/10 after a bad Q and even took on some assclown in the comments section a few times showing everyone why Money McBags is the premier small cap analyst on the Street).  After DGIT’s last Q, Money McBags advised readers to take some profits because the easy money had been made, but hopefully you didn’t take all of your profits because even more easy money is now being made.

As for the Q, revenue was up 32% but most importantly HD revenue was up 61% and that is the driver of this whole fucking business.  They said HD is still only 11% of volume so there is more room for growth than in Sheyla Hershey’s old bra, especially as they grow internationally.  EBITDA was up 47% to $38MM, GAAP net income was $.51 per share (though included a $.13 impairment write-down for Springbox, and Money McBags would like to spring in this box), and non-gaap net income was $.76 per share.  Both their HD revenue and standard revenue beat Money McBags’ guesses as he had $29.5MM for HD and $38.5MM for standard and they killed it with $34.5MM for HD and $41.6MM for standard, so boo fucking ya.

So what do we do here as the company seems to be firing on all cylinders and the rumors of competition from Extreme Reach and Ascent Media are but a whisper.  HD just grew 70% for the year so one question is what will it grow next year and another question is who is this girl and is she free for dinner?  Anyway,after last Q Money McBags estimated HD could grow ~30% in 2011 and got an eps guess of ~$1.95 and an EBITDA guess of ~$125MM for the year, but shit that may be low.  Lets assume HD grows 40%, their standard business grows 10% (~22% total top line growth), costs go up 15%, and the tax rate is 40% and we get to ~$2.23 in GAAP eps and the company is trading at only ~15x that right now but using a non-gaap number with stock comp we get to ~$2.50 per share.  Not only that, but they have been running ~46% to 48% EBITDA margins so if we call it 47% (though it should scale as they continue to get leverage), and revenue ~$295MM, we get ~$140MM EBITDA.

The company has ~$73MM in net cash and a market value of ~$923MM, so an EV of ~$850MM and they are trading at only 6x that high end but reasonable EBITDA estimate.  Shit, with that kind of growth they should trade closer to 8x and thus 30% upside to ~$42 is not unreasonable here.  So if the stock trades down, consider adding a bit and if you still own some, hold on because this could be another solid year as they continue to have the killer app for HD ad delivery and as we saw, HD video is still at the inflection point.