Yesterday I reduced position in the stock at $11.25. This reduction was done to reduce the risk of a potential value trap. The stock remains cheap and the company could have a bright future under an activist or if taken over by another company. Current management is disappointing to say the least. Despite poor performance, they continue to receive fat bonuses as I understand the top management are involved in the goal setting which pays their performance. The goals turn out to be extremely low and no matter what happens they get paid. Just as important is the guidance which is not as trustworthy as hoped for. The services bet continues to miss the management’s goal. While they have consistently stated margin goals of 10-12%, the actual margin that came in for services was 7.5%. This poor performance was somewhat saved by the old tech Document Technology segment (think printers) which is no longer a focus of the company. This is a riskier position than initially thought of and hence the reduction in holdings.
Why not sell? Truth is I’m losing my patience, and will be thinking hard about this holding. On the positive side, the company is still generating FCF which has been returned to shareholders. Also, crazier things have happened to companies with even worse management (think SPLS – read my Seeking Alpha article and then look at a stock chart to see what I mean). Now where is that activist?