The Spread Between Too Public and Barely Public

Scott is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Somewhere is a line between excessive hyping of a stock and what is appropriate to informing potential investors about the future investment prospects of a company. 

Daktronics (NASDAQ: DAKT), which on Tuesday, Nov. 20 released news of solid revenue growth and blew away the Street's earnings consensus, is an example of a company on the extreme end of the under-hyped spectrum.

The chart below demonstrates how the stock went from $6.32 a share in late August to approximately $10.00 a share after surprising the Street for that quarter.

<img src="/media/images/user_13823/dakt-6-month_large.png" />

Daktronics 6 Month Chart

On the over-hyped side of the spectrum, one might look to the IPO of Facebook (NASDAQ: FB).  Before the infamous IPO, everyone already knew about Facebook and could easily find media speculation on the potential prospects (or lack thereof) when it came to that stock.  Ye, that didn't stop the company and investment bankers from going on a pre-IPO "road-show" to further hype a stock that was already over-subscribed to. 

The tech bubble of the late 90's was replete with examples of companies like AOL, Inc. (NYSE: AOL) or Amazon (NASDAQ: AMZN) that were known for issuing seemingly superfluous press releases.  If Jeff Bezos had an idea on the way to the office, one might expect it to become a press release.  If Google installed a jungle gym or a new espresso bar for employees, there would be a press release.  It came to the point where many, including myself, suspected that the company shares and employee stock options were becoming the company's main product.

That gave rise to a cottage industry for avaricious lawyers - enter the shareholder class action lawsuit.  If you conduct a search using Facebook+shareholder+ lawsuit, you will find lawsuits that emanated just weeks after the Facebook IPO.  If you conduct the same search using any of the hot tech stocks of the 90's you will find the same.

For large cap companies, these lawsuits are not even a blip on the radar screen; however, for the smaller companies like Daktronics, they can be a significant waste of time and money that might dissuade such companies from issuing press releases for fear of being falsely accused by these lawyers.

Unfortunately, Daktronics did fall prey to such lawsuits in 2009.  These lawsuits were later dismissed by the courts, but one has to wonder if such lawsuits create incentives for smaller companies to release the bare minimum required of a public company.

Although I have had a long position in Daktronics and have long recommended the stock based upon what I believe are outstanding fundamentals, I have been frustrated by the lack of up to date information being released by the company.  This is a rather low-volume stock that has an average daily trading volume of less than 150,000 shares a day.  That means there are many investors who have no idea this growth company exists, much less that it is trading at a low price relative to growth, and has a high dividend yield (over 6%), when factoring in the "special dividend" declared the past year in addition to the regular dividend. 

The result is that despite rebounding from the lows to the mid $10.00 level, during the months of its past quarter, the stock declined substantially for perhaps inexplicable reasons, other than a lack of information. 

As an investor, I want to know something about what is going on in regard to new contracts   There seems to be an occasional obligatory press release about a new billboard, as in the Sept. 28 release about Daktronics "lighting up Barclays Center," but this is not good enough.  Believing that they must have accomplished more than that as the numbers suggest, I called Daktronics several weeks ago, asking for Investor Relations.  I was told there is no investor relations department by the receptionist.  I then unloaded my frustrations (perhaps to her consternation) and asked her with whom I might speak in regard to the lack of information.  She told me James Morgan, the CEO, would be the person, but he was out of the office that week.  So I left Mr. Morgan (now 65 and at retirement age) a message and never heard back from him.

So the stock is stuck in a pattern.  The company is leading what is projected to be an industry that will grow by tens of billions of dollars thanks to the new technology and primitive nature of the old fashioned billboards being replaced. Yet after each quarter of bang up results, the volume and interest dissipates to the point where employees and other shareholders selling a meager few hundred shares apiece to pay for their summer vacations, or a new washer and dryer causes daily 3% declines.  Consequently, over the course of the quarter, the stock dwindles down 25% on diminutive volume.  Then, by the time the new results are released, the stock shoots up 15% on earnings day and doesn't even eclipse the highs reached after the August results. 
That's some reward for shareholders!  Daktronics doesn't have a problem of over-hyping prospects or executing their business strategy.  Daktronics is the antithesis of the AOL-type scenarios of the tech bubble or the Facebooks of today's Internet boom.

It is time for Daktronics to put someone in charge of promoting their business to investors and find that appropriate balance between hype and legitimate informing.  Perhaps it is time for the company to be owned by a larger company, as I suggested in my recent essay, Merging Of Internet And Interstate: An Outdoor Advertising Revolution.

Scott Ryan Anderson has a position in Daktronics Inc. The Motley Fool owns shares of and Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend, Daktronics, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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