Thrilled and Appalled
What do you do if the CEO of a company starts to sound a little, uh, promotional?
So I'm listening to the post-earnings-release conference call of Premier Exhibitions, my largest holding, when I hear chief executive Arnie Geller say, "Over the next 24 months, we expect that ourbusiness earnings will rise to the level that will justify a stock price in the $30 range." All at once I am thrilled, shocked and appalled.
Given that Premier, which produces exhibitions and shows, was then trading at about $12.50, this was news. I was grateful that Geller's projection dovetailed with my own, but I was so dumbfounded by his statement that I didn't know whether I should call my broker or a securities lawyer.
CEOs, after all, just don't say such things. And for good reason. Issuing guidance is a minefield under the best of circumstances, but mentioning a specific stock target could expose a company to litigation. In fact, on May 15, four days after Geller's slip, Premier (symbol PRXI) issued a release saying the comments did not represent formal guidance.
So the bigger question is: What do you do if the CEO of a company you like starts to sound a little, uh, promotional? As Warren Buffett has noted, not every promoter is a crook, but every crook is a promoter.
First, you ding the CEO for being unsophisticated. Although this isn't a fatal flaw -- many superslick CEOs are in the business of ritually misleading investors -- it is not necessarily comforting. Geller told me that when people pointed out to him that his comments were beyond the pale, "it was news to me." But he was hardly contrite. About that $30 target, he said: "I suspect it could be worth more."
Next, find out whether the CEO has been keeping his money where his mouth is. One reason I love Premier is that the boss and his wife, who own more than three million shares, haven't sold a share in more than seven years. (The stock, which fetched 4 cents in 2003, traded at $14 in mid June.) Given that the shares represent a major portion of the Gellers' net worth, the absence of selling is bullish behavior.
Then you want to know how the CEO's promises have panned out before. CEOs, like bridegrooms, tend to be optimistic. But, looking back, you want to know whether their optimism has been justified. Do they deliver or simply spew happy talk?
Well, Geller has delivered. During the same call in which he mentioned that $30 price target, he announced that Premier would have 11 exhibitions on human anatomy running by the end of June. Previously, he had said the company would have ten such exhibitions touring by the end of the year. So Premier delivered a number that was 10% greater than originally indicated -- and did so six months early. Before you knock Geller for being promotional, check out the conference-call transcripts of high-profile CEOs whose promises have been hot air (for example, Ed Zander, of Motorola).
The bottom line: The etiquette of Premier's CEO may be questionable, but he is genuinely bullish on his company, and his actions suggest you should be as well.
Some readers have asked for an update on Investools (SWIM), which I recommended in December's column at $11.77. The stock soared to $17.49 by February, but languished at $12 in mid June. Am I still bullish?
Yes, but less so. The story has changed. Investools' acquisition of the thinkorswim online brokerage has been a home run. The broker is adding new customers at a rate two or three times greater than anticipated.
But Investools' core investor-education business has slowed dramatically. I'm troubled, but I believe that the company can successfully transition its marketing from a partner-based model to selling its own Investools brand product, and that the business can revive (I haven't sold a single share). The stock could be 50% higher in a year.
Columnist Andrew Feinberg writes about the choices, challenges and frustrations facing individual investors.