Pearson (PSO) is no stranger to change.
After all, the British multinational education and publishing company began as a construction business in the 1840s.
However, Pearson will have to undergo another dramatic shift if it is going to survive let alone thrive in the digital age.
On Wednesday, the company slashed its profit forecast, projected dismal sales prospects for its biggest division and cut its dividend.
The traditional publishing industry has been hard hit by the rise of digital content, with the effects being felt by companies as varied as bookstore chain Barnes & Noble and newspaper giant New York Times.
In 2015, Pearson made some big changes,notably, selling off the iconic Financial Times and its 50% stake in The Economist, in an attempt to refocus its struggling business. That left the company dependent on its textbook and testing products division.
However, Pearson's education segment has been all but destroyed lately. Internet-based alternatives to physical textbooks and the popularity of online rentals led by Amazon, combined with a slowdown in college enrollment, have wreaked havoc.
Pearson's massive size is probably another impediment to its survival efforts. The company already tried to restructure as in, cut jobs last year, as well as back in 2013, but these moves have hardly been sufficient to offset the disruption to its core business model.
On Wednesday, these troubles led Pearson to project operating profit way below analysts' average estimates, which were already low. This marks Pearson's fifth profit warning in four years.
The company has already missed half-year estimates in six of its past eight financial reports.
However, unless Pearson can successfully re-position itself in the digital book industry, with a particular emphasis on ebook rentals, it could soon reach a point of no return. With its business in a state of flux and operating margins plummeting to decade lows, there is zero merit in getting into the stock at this time.
A dividend cut certainly doesn't add to the company's allure. For income investors, Pearson had carried a solid record, with 24 years of growing dividends.
Although stock may look attractive at less than 10 times forward earnings, for Pearson the worst is probably yet to come.
Investors looking for alternative plays on education and publishing may want to check out smaller firms Educational Development, John Wiley & Sons and Scholastic. Although not without risk, these companies are still on safer ground.
Publisher Pearson is clearly a stock to avoid. But it isn't the only risky investment out there. A blistering financial storm is about to hit our shores. When it hits, weak companies-and their investors-will be washed away. You need to put yourself on solid ground. And that doesn't just mean changing your investment allocations or loading up on cash.