Learning Tree Is Worth More In A Buyout

| About: Learning Tree (LTRE)

Summary

Lending Tree offers online IT courses and certifications.

The principal shareholder is 75 and is looking for a potential exit.

The stock could be worth double in a buyout.

Learning Tree (NASDAQ:LTRE) is a company that provides online learning for the information technology industry. The company has been around since the 1970s but the stock has done quite poorly. In talking with people involved with the company, many stakeholders are looking to sell and investment banks have been contacted. We think the stock is worth much more than $2.38.

There are 13.22 million shares, the stock trades at $2.38, and the market cap is $31.5 million. The stock does not pay a dividend and the trailing price to earnings ratio is -$2.96. The balance sheet shows $9 million in cash, $9.6 million in accounts receivables, and $9.2 million in payables. There is no debt. So in other words cash and receivables to payables is two to one. I like this balance sheet.

Revenues were $181.2 million in 2008 and were $95 million last year. Yikes! That's a drop. Free cash flow was a loss for the following years: $11.92 million in 2015, $4.58 million in 2014, $5.22 million in 2013, and $8.59 million in 2012. Double yikes! At least management hasn't added debt or increased outstanding shares. The price to sales ratio is 0.34. 73% of revenues are derived in North America, 21% U.K., 3.3% Sweden, and 2.7% Japan. Part of the big drop in sales is due to divisions being sold off.

So what does the Learning Tree do? IT training: Linux, Cisco, Java, Oracle, Unix, Windows, cloud computing and so on. Furthermore, you can get certifications in these areas. That's important in today's ever changing economy. Imagine being out of work and learning the tech industry from scratch and having the certifications to back your knowledge. Here is a link to Learning Tree's Course Index-- very impressive.

The problem with Learning Tree is that it was behind the times. The company mailed catalogues of courses to companies and held classes in expensive locations. In modern times, people do everything online and Learning Tree was slow to figure this out.

CEO Richard Spires was director of Homeland Security from 2009 to 2013. In a link to this article, several high up government agencies discuss the need to train government employees on IT. Spires has also served as the head of several software companies and worked for the IRS. Six years ago, the company was fined $4.5 million for invoicing the government for classes that were never attended.

In a recent quarterly conference call, John Lewis of Osmium Partners asked if the company had retained an investment banker to sell the company. As one might expect, management declined to answer. He was the only person on the conference call to ask a question. According to a 13-D with the SEC, Osmium owns 10.2% of the company. The principal shareholder is David Collins, with a 56% holding. Collins is the founder and is 75. He wants to sell. So that's 66% of the shareholders who may want to sell. I have not discussed this with Collins.

No doubt, there is risk with the Learning Tree. First off, it's a microcap and extremely thinly traded. As of this morning, it has not traded a single share. Like all microcaps, if the company loses a key contract or has a problem, the stock is going to get killed. The stock could get killed anyways, just because of the small size of the company. We have been buying shares and it is easy to move the market.

Looking at a long time chart of the stock, it's the most depressing graph you've ever seen in your entire life. The stock was $68.44 in July 2000. Since then, it's been downhill. Like all stocks, it has its moments. If you get in at $7 and out at $14, you're doing okay. I'd say management is probably tired of holding shares and now is a good time to buy, if you're willing to hold a very risky stock.

If the market cap is $31.5 million and sales were $95 million in 2015, I'd think the stock is worth considerably more. Personally, I think the brand name is worth much more than $31.5 million. Imagine all of the companies like Pearson (NYSE:PSO) and Graham Holdings (NYSE:GHC) involved in education. For a small amount of money, they can get a company with 40 years of brand name recognition.

Disclosure: I am/we are long LTRE, PSO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.