Harsh customer reviews prompted me to take what profits I could on this evolving online marketing company.
Hanging Up On Yellow Pages
This sale had nothing to do with the market turmoil of the last few weeks. This sale was all about the company itself and the continued erosion of its customer base. I bought into Yellow Pages last fall. I had been watching this stock for a while and after an encouraging second quarter that saw earnings notch a slight gain over the preceding quarter, I thought the company might have reached an inflection point and decided it was an opportune time to climb onboard. There was new management at the helm with a clear and convincing plan to turn things around. The company’s core business of helping small business owners navigate the growing complexity of marketing themselves in the new digital world of social media and internet searches seemed like a potential winner. Their website looked slick, they had a new labour contract in hand and were making great strides towards paying down their remaining debt.
The share price responded quite well to these initiatives and as of a few weeks ago, had risen by over 50% from where I first bought in.
However, I was having doubts. While management put an upbeat spin on third and fourth quarter results, the glimmerings of an earnings recovery that I first saw in Q2 did not last. Q3 and Q4 each saw another big drop in quarter over quarter sales and earnings. The company keeps talking about “bending the revenue curve” but so far that curve is looking more like a straight line pointed down.
What’s worse, a reader alerted me to the fact that the online reviews by the customers of this company are absolutely atrocious. Reading though these reviews would be enough to give any investor pause.
Often things have to percolate in my head for a while. For some reason, it was while I was enjoying a cold beer and discussing the markets with a good friend of mine on a winter ski weekend in late February, that I decided to take my gains and move on. By the time I logged in to my brokerage account the following Monday, the share price had pulled off of its highs and was trading around the $12 mark. This is a thinly traded stock and it had taken me a while to buy into it. Which is one reason why it took me a while to decide to get out again. I did not relish the drudgery of putting in daily sell orders for weeks on end. However, I had come to a decision and I started unloading my position, being careful not to spook the market by unloading too much at once.
Market events conspired against me and started overwhelming any company-specific factors that might have been at play. The share price started dropping like a stone along with the overall market and I kept scrambling trying to keep ahead of the decline, all the time wondering if I was being too hasty in bailing on this story without giving it more of a chance to play out.
I finally sold the last of my shares on Friday at pretty much the same price I had paid for them back in the fall. In the end, I did made some money on this stock but not nearly enough to compensate for the arduous buying in and selling out process. I always resolve to stick to more heavily traded securities in my portfolio but then I’ll see a juicy little tidbit like this come along and I just can’t help myself.
As we slide into what might become a more prolonged bear market, which is often accompanied by a drying up of liquidity especially amongst the smaller stocks, it is well worth keeping this lesson in mind. Micro cap stocks can sometimes be like the Hotel California. You can check in any time you like but you can never leave.
At the current share price, I’m not convinced that Yellow Pages might not still offer investors a good return on their money. They are on track to eliminate all of their bank debt by next year using the still prodigious cash flow their business is generating. If they can halt the steady decline in their sales, then this story would look very enticing at current valuations. But with the nasty comments their customers are leaving for them online, I’m going to have to see clear signs that this is happening before being tempted to tip toe back into this stock.
Full disclosure: I do not own shares in Yellow Pages.