Putting Stock in a Piano
Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Imagine a company that only makes one product: A huge, heavy musical instrument that takes almost a full year to assemble, and which almost no typical household can afford to buy brand new. The intricate, precision detail on the instrument must be done by hand, raising its price well above that of its competitors. Modern technology has created an electronic version of the instrument which, at a fraction of the cost, imitates very closely the sound and feel (at least to most players) of the real thing. What’s more, the electronic version fits up a flight of stairs. Need a hint to figure out what company this is? Here’s its ticker symbol: LVB.
Admittedly, the symbol LVB doesn’t immediately clue you in to the company’s name: Steinway Musical Instruments (NYSE: LVB). Even if you’ve never touched a piano in your life, you probably recognize the name, and might even come up with it on your own if someone asked you to name the best piano builder in the world. But despite being (arguably) the best, it is true that the company's primary brand, Steinway & Sons, has one of the smallest niche audiences imaginable. It produces a single instrument that usually leaves the showroom in one of three ways: on its way to an institution like a music college; on its way to the home of a concert pianist who has reached the top of his or her profession; or on loan for a concert in which the featured pianist plays on Steinways exclusively.
Given the economic state of the nation, you might expect the folks at Steinway to have had a very stressful last few years. Granted, their target audience suffered less than traditional audiences, but colleges around the country have certainly not been untouched by financial shortages. And wealthy donors don’t seem quite as eager as they used to be about giving large sums of cash toward a brand new piano for their favorite beneficiaries.
While Steinway did experience a low point of $9.22 per share in February of 2009, over the following two years it recovered to around $25 per share and has remained steady since then. That recovery was helped along by Conn-Selmer, a conglomerate of other musical instrument builders owned by Steinway Musical Instruments. There are quite a few other industries in which that kind of recovery would be hailed as a resounding triumph.
What’s the secret to the resilience and reliable success of this piano company? Just ask a pianist. Touching the keys of one of these magnificent instruments, a pianist feels like he could do anything with it. There is simply no substitute for the quality of a musical instrument that has been assembled by hand from the time it was cut from the Alaskan forest to the final polishing of its black and white keys.
Certainly even Yamaha’s Clavinova, the leading digital piano, while less expensive and probably more practical in most homes, is still and will probably always be considered a replica of the real thing. We would feel cheated to see someone perform a piano concerto in front of an orchestra with a piano that had to be plugged in.
In a very unusual step for Steinway, it is cooperating with Apple (NASDAQ: AAPL) to offer a music player/educational app for the iPad, geared toward those just starting to learn piano. In 2008, Steinway also purchased ArkivMusic, an online store for classical recordings. Whether or not Steinway plans to expand its operations into the technological world remains to be seen. While Conn-Selmer, the band and orchestra instrument company owned by Steinway, continues to put up good sales numbers, it seems clear that the company will rise or fall—and most likely continue to rise—on the merits of its signature product: a hand-built, gleaming black piano that sounds and feels like nothing else.
If your curiosity hasn’t yet driven you to look up the ticker symbol LVB, here’s your reward: It stands for Ludwig van Beethoven, a name that, like Steinway & Sons, has established itself as an essential part of the music world. You might not think of a piano builder as a consistent, reliable stock, but in the 16 years it's been on the public market, it has never dipped below $12.75 except for the $9.22 low point in early 2009. It's been as high as $37.88, and looks to be headed in that direction again. Putting your faith in the power of music might sound sentimental, but that doesn't mean it can't make good financial sense too!
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