Aladdin: Careful Investing in Stock Named After a Disney Character
Written by: Aaron Katsman | July 2, 2008
Aaron Katsman
IsraelNewsletter.com
One of my 7 year old daughter’s favorite movies is the Disney classic Aladdin. In the movie, Aladdin must rely on his intelligence to trick Jafar and save his friends and the Kingdom. He meets a genie and receives 3 wishes. We all know what happens next. He saves the kingdom and falls in love with the Princess. If only stock investing followed a Disney script.
Fast forward to reality and today we have Aladdin Knowledge Systems (ALDN) getting slammed on the back of a terrible earnings warning. This follows a Q1 warning and lowering of ‘08 numbers. Now the company is back with a new an improved warning. According to the AP report: “Aladdin, which released preliminary figures for the quarter, said it expects to report profit of 1 cent per share on revenue of $26 million to $26.5 million in the latest period. Analysts polled by Thomson Financial expected profit of 27 cents per share.”
Yikes! The company attributed the shortfall on a slow global economy, strong Shekel, and some orders that were delayed. Keep in mind that this is a stock that started the year over $25 and is now trading under $10. The obvious question is where is management. How can analysts think you are going to do 27 cents and you end up saying that you are going to do a penny? Once again we have an example of why investors get spooked about investing in Israeli stocks that trade in the US. They have little confidence that management can deliver consistent numbers. As I wrote last week regarding Israeli companies, ” They have great technology but the management is inexperienced and can’t take the company to the next level. Then they operate as if no one is watching and try to and make out like bandits. Newsflash: This doesn’t play well on Wall Street.”
One should always be wary of investing in a company that shares a name with a Disney character. For investors it sure would be nice to see a Genie appear, and give management 3 wishes to get the company back on track.
Disclosure: Author’s fund has a position in ALDN. He has no position in any other stock mentioned as of 7/02/08.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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Aladdin is a leading vendor of hardware authentication tokens. The company is No. 1 in the software license authentication token market and No. 2 in the rapidly growing USB token authentication market. Aladdin also offers a digital rights management product for secure software distribution.