What Happened to Value Line?
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I have been researching the stock market since the summer of 1991 when I bought 5 shares of my first employer Winn-Dixie Stores, Inc. Since then I have been hooked by the stock market bug. I realized early on that a person can’t make an informed decision on share purchases without doing a certain amount of research. In the pre-internet era there were fewer ways for an individual to do in-depth research. For example, you could order printed annual reports and SEC documents from a company’s investor relations department by phone or snail mail or you could consult the local library’s Value Line (NASDAQ: VALU) Investment Survey to analyze profitability and cash flow figures of a particular company of interest. Even to this day I occasionally enjoy going to the local library to peruse their pages for investment ideas,. However in the age of the Internet the business model of printing a large tome of stock market data is becoming increasingly outdated when investors can research endless amounts of data for free and in the comforts of their own home.
Value Line the Dinosaur
Value Line revenue has been in a state of decline in recent years (see graph below). Free cash flow is negative $1 million as of April 30. There are many reasons for this decline. The preeminent reason is that subscribers are fleeing to more readily available and cheaper sources of information mainly on the internet. Value Line’s website is very prohibitive. You have to subscribe to gain access to any meaningful information. If you want to subscribe personally to the Value Line Investment Survey it costs $269 per year (this is a sale price of 50% off the normal price of $538 per year). So, the only economical way to gain access to their information is to go to a library that carries a subscription. This company is obviously slow in catching up to the 21st century.
If you go to Morningstar’s (NASDAQ: MORN) website you have access to loads of free information. It gives you access to financial statement data going back 5 years without having to subscribe. A one-year subscription costs $189, a 28% discount off the monthly price of $21.95, which is quite competitive with the Value Line Investment Survey and provides access to more in-depth reports. Of course, if you are a do-it-yourselfer then given enough spare time you can get this information yourself for free by downloading electronic copies of companies' SEC documents and compiling the data yourself. Also the Motley Fool provides financial data, ratios, and information to help the individual investor make more informed decisions to avoid being a “foolish” investor.
Value Line the Rebel
Studying Value Line, Inc. has reminded me of the dangers of not doing your investment research. Ironically, when I look at the print edition of the Value Line Investment Survey with its black cover and thin black and white pages, I think of honesty and conservatism. I don’t think of rebate scandals and attempts to mislead. However, Value Line came under SEC investigation for misleading independent board members and their fund shareholders concerning brokerage fees that were being charged to trade securities for their mutual funds.
It would seem that management was telling their mutual fund holders and independent board members that the brokerage fee being charged was $0.0488 per share when in fact the fees were ranging from $0.0288-$0.0388 per share. The “rebate” or difference was being directed back to Value Line Securities. Value Line, Inc. had to pay over $34 million in fines and the senior management had to pay $1.25 million in personal fines and was barred from the securities industry. This is a company that says it’s the most trusted name in investment research.
Conclusion
The degradation of Value Line’s fundamentals is due to an outmoded business model that is based on print and denying access to all but the most basic information on its electronic editions. Information that used to be exclusive to the Value Investment tomes is now conveniently available on the Web for free. Also the questionable history of this company’s management gives pause when I hear the words, “The most trusted name in investment research.”
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