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, Barel Karsan (413 clicks)
Long only, deep value, contrarian
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Ambassadors Group (NASDAQ:EPAX) looks like a value stock, but with deteriorating fundamentals. A value investor appears interested in making some changes at the company, which could interest some catalyst investors.

Ambassadors Group markets and operates travel programs for students (e.g. it organizes the sending of high school students to spend a few weeks in a foreign country over the summer). The company trades for $85 million, but has $53 million of cash and short-term securities. Furthermore, it has generated strong free cash flow over the last few years.

But revenues are clearly trending downward. Sales are some 30+% lower than they were in 2007, as enrollments are down and withdrawal rates are high. But rather than shrink down and hold profitability ratios, management has decided to keep on spending, much to the chagrin of one value investor.

On the company's most recent conference call, value investors from Lane Five Capital Management took Ambassadors' management to task on a number of issues, including their high salaries and increased marketing spend per student (from $900 in 2007 to $2000 today). Since that call, Lane Five has disclosed that it now owns more than 5% of the company.

Considering the tone the investors took with the company's management, it appears likely that Lane Five will seek to make some changes to the company (though this is pure speculation on my part). Lane Five already owns half as many shares of this widely held company as does management, so pushing through changes at this deteriorating company may be possible if other shareholders are also dissatisfied.

Value investors who look for potential catalysts may want to keep an eye on this stock!

Disclosure: No position

Source: Ambassadors Group: Activism In Action