A few months ago, I wrote an article on microcap Learning Tree (NASDAQ:LTRE). Since then, the stock has run from $2.38 to $2.90. To recap from the first article, the founder, David Collins, owns 56% of the company. An activist hedge fund, Osmium, owns another 10%. Mr. Collins is 75 years old and is interested in finding a buyer (as is Osmium).
The problem is that the stock is a microcap. There are 13.22 million shares, the stock trades for $2.90, and the market cap is $38.34 million. Some days, there are zero shares traded. This is a stock for individuals, not institutional traders.
I'll use some of the information from the first article. 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 0.40. Also, 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.
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.
As of today, there is zero volume. Ever heard the expression "trade by appointment?" The average volume is about 7,000 shares. However, the stock hasn't been this high in two years.
So why buy? Because it's a stalemate - no one wants to sell. The only sellers are probably people who bought at 70¢ and are happy to make a killing. The insiders appear to be waiting for a buyout. It's the only way they will get their money back.
In 2012, Mr. Collins attempted to purchase the remaining shares of the company that he did not own at $5.25. Boy, I bet he's glad he didn't do that. At the time, he owned 32%. So you can see that there is some M&A history there.
Another potential reason is that many stocks with a bad year will have a worse December when investors want to harvest tax losses. In January, they will buy back after the proper waiting time. Thus, shares will increase in value.
So what's the takeaway from this article? Learning Tree's stock has been heading up and might keep going in that direction. The two largest shareholders own 66% and want to sell. If you would like to buy shares, good luck. You'll have to put in a limit and hope it gets filled. If you do own shares, you'll have to be patient and wait for a buyout or some other form of M&A.
Disclosure: I am/we are long LTRE.
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.
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