There are two instances when investors should be giving up on a company and taking a loss. The first instance is when the business model is broken, and there are no foreseeable catalysts that suggest a reversal. The second instance is when there are accounting irregularities.
Looking At 5 Companies Turning Around
In the first instance, a catalyst that could reverse the fortunes of a company is when there is a leadership change at the top. Oftentimes, a company gets lost when its founder leaves or retires. When the founder returns with renewed ideas, this could be the spark that brings a company back to its former glory.
1) Starbucks (SBUX) is one example of a company returning to glory. When the recession hit, Starbucks experienced a sharp decline in sales. The company’s founder, Howard Schultz, returned. He led the company’s coffee staff by asking them to look within. By searching for new and creative ideas, the company improved the look of its stores, broadened its product line, and profits grew again.2) Best Buy (BBY) is in the midst of a turnaround. Battered by online competition, Best Buy has high fixed cost in real estate that online stores do not face. Its former CEO, Richard Schulze, wants to buy back the company and to take it private. 3) Yahoo (YHOO)’s past CEO proved to be holding down the value of its shares, but the company has an ex- Google (GOOG) executive who is bringing fresh ideas to the company. Read more here. 4) Research in Motion (RIMM) did not bring back old executives, but instead hired from within. Blackberry 10, due to be released at the end of January 2013 is an all-or nothing bet on the company’s future. Chances are higher-than-average that RIM will be able to improve market share after the entirely new operating system is launched. Shares are up sharply already: investors anticipate Blackberry 10 to improve the company’s fortune. 5) Hewlett-Packard (HPQ) hired yet another CEO. The company is in the midst of a multi-year turnaround, but it is working at a pace that is too slow for investors. Printing and PC sales are dropping faster than the rate at which the company is cutting costs. HP also lacks any growth catalysts in smart phone devices or tablets. Its enterprise software unit, while small relative to revenue, is the only bright spot for the company. Investing Ideas: Comparative Analysis To get a better view of the companies turning around, Kapitall’s Compar-o-Matic tool is used. A chart of market capitalization against quarterly sales is charted below, press play to see how this data changes over the past two years. Click through to interactively chart many other data points.
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