As an investor, you need to know if the underlying problem that caused the stock to fall is fixable. Let’s take a look at a few companies that have, for lack of a better phrase, screwed it up, and examine what happened and whether there is any hope left.
Niko Resources Ltd. (NKO/TSX) was an $8 stock back in 2001. It then went on a huge run following some big gas discoveries in India and rose above $110 in 2010. Now, it’s back more or less where it was 11 years ago. In 2007, it raised $500-million, at $105 per share, but its market cap today is less than that.
What happened? Well, expensive wells were dry, it was hit with political issues in Bangladesh, and it has a big debt load looming over its head. BMO in a report said Niko’s failure to outline a debt repayment plan is “disconcerting.”
Niko recently cut its dividend to save some money and its shares are down 81% this year. On Thursday, Niko sold $252- million in convertible debentures and shares to get itself back on track. But we would still just watch this one from the sidelines
BioExx Specialty Proteins Ltd. (BXI/TSX) developed a new way of processing canola oil and over the past three years it has raised a total of $83-million through five financings. Its current market cap is just $18-million and it is also in the process of raising money via a convertible debenture offering. BioExx states this is “an exciting time for the company.”
BioExx is still showing the potential of scaling up its production process, but financing issues are coming into play. Again, too much risk on this one.
CML Healthcare Inc. (CLC/TSX)
CML Healthcare Inc. (CLC/TSX) offers medical imaging and lab services in Ontario. Its recent third-quarter earnings were a big miss, but the company, in our view, screwed up by not announcing a dividend cut. Everyone now expects a cut, and the stock has been killed because of the dividend uncertainty.
Uncertainty is not what any stock needs in this environment. The earnings miss was bad, yet the stock might not have fallen so much if the board had laid out the dividend cut at the same time.
But the stock has been beaten up a bit too much over this issue — now down 36% year-to-date — so this one probably has potential.
IBI Group Inc. (IBG/TSX) is in almost the exact same boat as CML after it also missed earnings expectations by a wide margin. The professional services and infrastructure company reported earnings of $0.13 per share, down 47%. But the board chose not to cut the dividend, which now yields 17.8%.
Stonecap Securities says a 50% dividend cut would actually be positive for IBI’s shares. We think the company still has value and it is profitable, but investors just won’t care much until there is more clarity on the dividend.
Like CML, the company should have taken its medicine at the same time as its earnings release.
Finally, you can’t screw up much worse than Groupon Inc. (GRPN/NASDAQ). After rejecting a US$6-billion takeover in late 2010 by Google, Groupon decided to go public, with its IPO at US$20 per share, valuing the company at US$13-billion.
The decision looked good, for a day or so. Now, after missing earnings and pretty much everything else, its shares trade at US$2.63 and the whole company is worth just US$1.7-billion.