Friday, May 02, 2008

Too Late to Cry 'Wolf' at Investools!

In December 2007, the 10Q Detective warned readers of the panoply of red flags flying overhead at Investools Inc (SWIM-$12.48), when shares fetched $17.34 a share.

After the close of trading Thursday, the o
nline brokerage and investor education services company posted a quarterly profit that was below Wall Street estimates and said the U.S. Securities and Exchange Commission was conducting an informal inquiry into some of its presentations (the seminars the company conducts).

Alone on the hill day after day, the boy got bored. He decided to play a practical joke on the villagers. He took a deep breath and shouted, "Wolf! Wolf! A wolf is here!"

The villagers ran up to drive the wolf away. But when they reached the top of the hill, all they saw was a laughing boy, and no wolf.

The villagers scolded the boy. "This is not funny. Don't cry 'wolf' when there's no wolf!" Grumbling among themselves, they went back down the hill.

We take no comfort in reminding investors--again--that this disaster was avoidable: (i) neither Investools or its employees, nor its independent contractors [were] licensed financial advisors; (ii) only three of the coaches had more than ten years of personal investing experience; and (iii) management consistently masked revenue as deferred liability (among other accounting concerns).

The next day, the boy yelled again,"Wolf! Wolf! The wolf is chasing the sheep!"

He bent over with laughter when the villagers once again came to the rescue.

When the villagers saw no wolf, they warned the boy: "If you ever do this again, we won't answer your call when there really is a wolf!
Don't waste our time. Don't cry 'wolf' when there's no wolf!"

Shares of the company were trading at $9.97 per share after the bell, down almost 20.1 percent.

Later that day, the boy saw a REAL wolf prowling about his flock.
Immediately, he jumped to his feet and sounded the alarm: "Wolf! Wolf!"

But the villagers thought that the shepherd boy was trying to fool them
once more, so they ignored him. ~ "The Boy Who Cried Wolf"
~ Aesop fable


Anonymous said...

Should investors with Thinkorswim accounts be concerned about a possible Investools banckruptcy? I don't know enough about the legal structures of the online brokerages....but I may have to learn more quickly. Thanks...

Aurelien said...

To Anon:

I personally use ThinkorSwim and have no worries whatsoever about an Investools bankruptcy being an issue for the brokerage part of the business. If you took a look at their most recent Quarter, you would realize that the company was profitable to the tune of 17 cents a share.

Also, brokerages are required to keep client money separate from corporate money, so even if the company went out of business completely, you would simply have to find a new broker.

PS: What is your impression of the brokerage part of the business 10Q Detective? I think that the stock is still overpriced, but at some point it might turn into a decent investment as I think that ThinkorSwim is an excellent brokerage (based on my own experience and my friends. I recommend it to all my friends that are interested in opening a brokerage account).