This might sound like a problem that could have a fix, but if you look at dELiA*s, Inc. (NASDAQ:DLIA) historically, it’s had plenty of time to right the ship and has failed. It’s only turned an annual profit in two of the past 10 years, and has been free cash flow positive only once since 2004 — and that was a year in which it struggled to deliver $0.01 per share in free cash flow! To add even more complexity to its apparent issues, it recently hired a new CEO, Tracy Gardner, who was herself just hired in April as the company’s chief creative officer.
This has all the makings of a sinking ship without any identifiable catalyst or differentiating factor from its peers. If you ask me, I’d say, avoid, avoid, avoid!
Paper profits and real-world disappointments
We really can’t deny the fact anymore that cybersecurity has become a practical necessity for today’s businesses and governments. Hackers are becoming more sophisticated, but so are software developers, who are coming up with countless new ways to stay ahead of would-be hackers. While the entire sector is likely to see an influx of business, not every company makes sense as a smart investment.
One company in particular I’d suggest putting back on the sales rack is Proofpoint Inc (NASDAQ:PFPT), a threat and regulatory security-as-a-service provider. The profit potential is certainly there. Proofpoint’s SaaS model is built around getting the client hooked on its products and making it inconvenient and cost-inefficient for them to switch to a competitor. In other words, it’s setting up its own razor-and-blades model that should fuel recurring revenue for years to come.
Unfortunately, investors seem to think we’re already in the year 2016 or beyond, because they’re pricing Proofpoint Inc (NASDAQ:PFPT) up in nosebleed status despite the fact that it’s unlikely to be profitable on an annual basis until fiscal 2015. In its most recent quarter it saw sales rise by 25% (that aforementioned but expected robust sales growth), but delivered net operating cash flow of just $1.2 million. Extrapolated, that’s a market value to free cash flow value of around 170! I don’t know about you, but this sounds like the epitome of trying to squeeze blood out of a turnip. My suggestion would be to wait for a significant pullback or allow Proofpoint Inc (NASDAQ:PFPT)’s cash flow to catch up with its valuation over the next year or two.
Foolish roundup
This week’s theme is all about “what you’ve done for me lately.” In each case, all three companies present compelling reasons for a rebound on paper, but none of the three has delivered a profitable year anytime recently (or ever, in some cases!). Until we see decisive steps in the right direction, I’d suggest keeping your distance.
The article 3 Stocks Near 52-Week Highs Worth Selling originally appeared on Fool.com is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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