Unfortunately, much of what passes for value investing today relies on accounting book value and other metrics whose utility has atrophied significantly over the years.
This firm moved to bolster its position within its market by acquiring a competitor in 2016, but it paid too high a price. The expected synergies from the deal have not come to fruition and the profitability of the combined firm has fallen instead of rising.
The risk/reward proposition for investors looks unfavorable due to a combination of industry lagging profitability, alarming expense growth, poorly-aligned executive compensation incentives, and high market-implied expectations for future profits.
This firm’s late transition to the cloud based software market has left it with falling profits, lagging margins, and a significantly overvalued stock.
Our Long Idea and Danger Zone research reports are part of an ongoing effort to identify hidden gems in the market and help clients avoid portfolio blowups. In this Position Update report, we are closing out two Long Ideas and two Danger Zone picks previously published on the Research Blog.
This firm has seen seen margins contract as early success brought more competition. To try and offset competitors taking market share, the firm made numerous shareholder value-destroying acquisitions. Now the stock is pricing in aggressively optimistic improvements in revenue growth and profit margins.