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Not Everybody Loves a Winner
Fastest of ‘Fast 50' a '98
loser on Wall Street
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Business New Haven
1/11/1999
By: BNH
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Last fall, the Shelton-based FlexiInternational Software had plenty to crow about.
In its annual survey of the state's fastest-growing technology companies, the Connecticut Technology Council (CTC) had just named FlexiInternational, which develops financial software packages for businesses, No. 1 among its “Fast 50,” having posted a staggering 13,851-percent revenue growth between 1993 and 1997. Since its founding in 1991, the company noted, it had enjoyed a compounded annual growth rate of 286 percent.
“Our revenue growth is a direct result of our technology,” crowed FlexiInternational President and CEO Stefan R. Bothe at the time, “which is designed to give our [software] solution a competitive edge when it comes to major issues such as return on investment and adaptability to business change and technology innovation.”
However, that revenue performance and attendant accolades could not obscure another, more ominous development: FlexiInternational's return on investment to its own shareholders. After going public in December 1997 at $11 a share, FlexiInternational closed that year at 15 1/2 and quickly became a Wall Street darling.
The year just ended told a different story: FlexiInternational's stock plummeted to less than $2 last month on the technology-heavy NASDAQ exchange, where it trades under the symbol FLXI. By January 4 (as this issue went to press) it had rebounded slightly to 2 1/4.
That performance hardly went unnoticed: On December 30 the Wall Street Journal cited FlexiInternational as one of three “worst 1998 New England stock picks,” companies which “lost nearly all their value in just months.”
What was behind FlexiInternational's disastrous performance. No single factor comes into view. Instead, the company may have been the victim of analysts' own hype, which drove the stock price up so fast following its first public offering.
In July, FlexiInternational announced that it would merely meet Wall Street's earnings estimates for the second quarter and fell short on sales - a bad sign for a growth company. That drove shares down to about $7 apiece. The following quarter the company posted a $5.5 million loss fueled by a slowdown in sales (down 12 percent from the third quarter of 1997) and what FlexiInternational executives characterized as the “distraction” from an acquisition of the Dodge Group.
Following the announcement, FlexiInternational shares fell below the $1 mark.
In the Journal article, stock analyst James Pickrel of Hambrecht & Quist, the San Francisco firm which co-managed FlexiInternational's IPO, expressed concern over FlexiInternational's inability to hold onto talented employees and what he characterized as its over-reliance on sales to a few large customers.
Following that third-quarter report, Pickrel's firm downgraded FlexiInternational from a “buy” to a “hold.”
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