SBJ/March 8 - 14, 1999/No Topic Name
Action skids on word of critical article
Published March 8, 1999
Action Performance Cos. (Nasdaq:ACTN) shares went on another wild ride recently, as shares plummeted after word leaked out of a thumbs-down article in a prominent financial publication.
Shares of Action dropped 15 percent between Feb. 23 and March 1, the first trading day after an article in Barron's criticized the auto-racing collectible maker and merchandiser.
Supporters of the company argued that the article was influenced by short sellers investors who bet a company's stock will fall. Action Performance's short interest the amount of shares sold short in a company was at an all-time high in February at 3.28 million shares. That means 20 percent of the company's shares are held by investors who want the stock to drop.
"This [article] was just meant to spook them into selling," said Chris Besing, the company's chief financial officer, indicating he felt the story was a ploy by short sellers. "Our long-term investors know [our] story well."
Negative stories about the company's prospects and financial conditions are now common. The Barron's article warned that NASCAR growth was flattening and that the firm's Internet strategy would hurt profit margins.
But in a blistering counterattack, Wheat First Union Corp. analyst Tom Thompson severely criticized the Barron's article and its reporter by name in a report he sent to investors.
"It ruined my Sunday evening," Thompson complained of the article. Wheat First Union has no investment banking relationship with Action Performance, he said.
NASCAR is growing and its current tracks alone could double capacity, Thompson said. Also, he asked, how could profit margins be hurt by Internet expansion if Action has a proprietary product? The company has exclusive marketing and licensing arrangements with drivers such as Jeff Gordon. As a result, margins will not be pressured, Thompson said.
Thompson also disputed the article's contention that tobacco restrictions would hurt Action's product line. Most of its drivers are not sponsored by cigarette companies, Thompson said.
The analyst conceded that a recent bout of insider selling by the company's top two officials, CEO Fred Wagenhals and Chief Financial Officer Besing, was unfortunate. "We do not like to see insider selling," he said.
Thompson, however, reiterated his buy rating and urged aggressive purchase of the stock, predicting it would reach $55 in the next 12 months, up from last Tuesday's close of 357Ú16.
Street & Smith's SportsBusiness Journal reporter Bill King contributed to this story.