We are selling American Software (AMSWA) on the recent price spike as we seek to take profits on our marginal positions, solidify our strong long-term convictions, and wait for the next big opportunities. While AMSWA is a solid, growing company that has beat the market during our holding period, it has been somewhat of a disappointment.
We based our recommendation in part on the under-appreciated 88% interest that AMSWA has in Logility (LGTY), a fast-growing provider of supply chain management software. Or should I say “was” fast-growing. While Logility had routinely been seeing 20% quarterly sales growth, the second quarter brought only an 11% bump. More discouraging were the comments from the conference call, where the CEO underwhelmed investors by predicting that “the third quarter has an opportunity to be better than last year’s third quarter.” Not exactly the kind of words that give one confidence in what is supposed to be a high-growth company.
Perhaps for these reasons, Logility’s stock has dropped nearly 40% since we recommended AMSWA, thus significantly diminishing the value of AMSWA’s “hidden” asset.
AMSWA still has a sparkling balance sheet and a tempting dividend. But we are taking a cautious approach to this market, and believe that we will find better opportunities in the near future.
Disclosure: SmartGuyStocks is no longer long AMSWA