To buy or to sell?
I am reminded of the Cendant (CD) disaster that unfolded about a year ago.
It started with a slow slide of the stock price, followed by an announcement of an amicable departure of a bunch of VP's, and then the bombshell - irregularities in the accounts.
The stock price was halved from over $40 to around $20. It moved back and forth a bit and people were beginning to come back on board, then another bombshell - the irregularities were downright fraud and were going to cost tens of millions. The VPs previously amicably departed and praised, were now villains and were retroactively dismissed.
Stock dropped to the low teens. Once again it started looking better, but then the third shoe dropped - the irregularities/fraud/whatever, is in the hundreds of millions, and the two previous years will need to be restated.
The stock went down to around $6 if I remember correctly, less than a seventh of its high. It is now around $17 and it is not clear whether the company will ever recover its old highs.
Just like Safeskin, Cendant and the two companies that merged to form it (HFS and CUC) were highly respected, supposedly huge cash generators, and growing nicely year on year and quarter on quarter. Till the shell game was uncovered.
Someone said then and I say it now: "Financial problems are like cockroaches, where there's one, there will be a lot more."
So far we have only seen channel stuffing. However, we don't know how much of the channel stuffing really took place. We don't know whether any of the deals give the distributors rights of return - so the revenue will need to be unbooked, and we don't know how far back they'll need to go to clean up the accounts.
AQll that assuming there was no deliberate fraud and misleading accounting. If there was, Chicken Little will be proved an optimist as far as SFSK is concerned.
Sad really - our investment club did the numbers and concluded this is a great investment. Can we sue the Beardstown Ladies?
Z |
