A Cautionary Tale

Posted by: Ben Steverman on December 5, 2007

In March of 2005, Wellman (WLM) might have looked like a good investment. The maker of PET resins and polyester staple fibers saw its stock price hit $15 that month, bringing its total market capitalization to $500 million. Maybe the stock was returning to glory days in the 1980s and 1990s, when the stock typically traded above $20.
Here’s the scary part: On Dec. 4, Wellman shares closed at a price of 33 cents. The New York Stock Exchange then announced the firm’s shares would no longer be traded on the exchange: Priced at that level, the stock no longer met listing requirements.
From March 2005 to Dec. 4 of this year, the value of the company fell 97.8%. Despite generating more than $1.3 billion in sales last year, mostly from two factories in Mississippi and Sourth Carolina, the once-$500 million firm was worth less than $11 million on the stock market.
As I write this, on Dec. 5, Wellman shares are plunging even further, down another 24%. It will now be listed on the over-the-counter market.
The culprit in Wellman’s meltdown? It appears to be stuck between rising raw material costs and competition from Asian imports. The firm has reported steep losses in recent quarters, and last month said it couldn’t pay a fourth quarter dividend.
There are probably many lessons for investors in Wellman’s pile of woe. For one thing, no stock has a “floor” below which it will not fall given the right conditions. Second, it’s not just start-ups that are risky: Even old (Wellman was founded in 1927), dividend-paying firms with top-notch facilities and consistent sales can be disastrous investments.

Reader Comments

John

December 29, 2007 1:28 PM

Unfortunately, good manufacturing companies, based in the US are in a precarious position due to the global market place.

What use to be a good solid investment, is now more of a bet on the companiy's survival. Frankly, if the company is not involved beyond the borders of the US (i.e. infrastructure and people), it is amazing they can even survive.

It seems that B-schools and globalization puts more onus on value than enginuity. And our own enginuity seeks out value outside of the US. A catch 22 for our businesses that have to produce the actual products and services.

I am sure all this will change as the global economies continue to adjust and equalize. Then American enginuity will prevail over cheap, shoddy goods once again.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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