While it is normal for companies to witness phases of growth and lull, these business cycles can be vicious for shareholders. Often, it is difficult and practically unviable for companies to go against the tide and thus, a timely call on such structural challenges is warranted on the part of shareholders. Having seen the best of days, Arctic Cat Inc. (NASDAQ: ACAT) and Destination Maternity Corp (NASDAQ: DEST) are faced with such monumental challenges. Here is a closer look to see if jumping the ship is better for shareholders.
Arctic Cat is a well-known manufacturer of snowmobiles, all-terrain vehicles and recreational off-highway vehicles. The stock was a major outperformer in 2013, but has seen a decline 35 percent so far this year following earnings disappointments in recent quarters and the subsequent departure of its chief executive. In the latest quarter ended June 30, 2014, the company posted a 34.7 percent decline in net earnings to $3.6 million. Nevertheless, it was an improvement from a loss of $1.55 million in the previous quarter, but shares are still trading close to its 52-week low levels.
Interestingly, the majority of the weakness came from foreign currency fluctuations even as a higher top-line indicated no sign of slack in the fundamental demand. Considering this, it may be an opportunity for long-term investors to buy this stock on the cheap. Valuations are attractive at a price earnings ratio of 13.3, while its balance sheet remains free of debt. Recently, the management also approved a share repurchase program amounting to $25 million of the common stock.
Philadelphia-based Destination Maternity Corp is also on a losing spree this year with share prices having declined 43 percent so far. With customers preferring the online route, this specialty retailer of maternity apparel has been grappling with declining sales and shrinking profits. The company's earnings declined 36.2 percent in the latest quarter to $5.5 million as top-line fell short of 5.6 percent from the previous year. The company has a solid balance sheet with zero debt, but this did not help matters. Complicating the situation is the failed attempt by the company to buyout its UK rival, Mothercare (LON: MTC), a step which cost Ed Krell the chief executive job.
While announcing the third quarter results, the management authorized a new plan to repurchase shares worth up to $10 million by July 2016. This should offer some respite to the stock which is trading just 10 percent above the 52-week low level. Dropping top-line for the last three years indicates the company is in a structural decline and more importantly, the company has not been able to make inroads in the e-commerce side of the trade.