Itron, Inc. (ITRI), Ebix Inc (EBIX): Why Selling At The Right Time Is So Hard

A good example of this is Ebix Inc (NASDAQ:EBIX), a company that has been the subject of quarterly short attacks for years. While many of the attacks have been pretty weakly supported, the fact remains that the company has acknowledged that it “was notified that the U.S Attorney for the Northern District of Georgia had opened an investigation into allegations of intentional misconduct.” For investors who looked past the anonymous attacks, a terminated merger as a result of ongoing SEC investigation should be sufficient reason to look for investment alternatives without the added drama of potential accounting issues.

There are better options available. Most investors have limited funds to invest and limited time to devote to researching companies, so the decision to sell a stock often comes down to the simple conclusion that there are better alternatives for those finite investment dollars and research hours. Investors may find that a company that has limited opportunity to grow, struggles to keep up with the competition, or carries more risk than alternative investments may not be worth a coveted space in a portfolio.

I recently made this determination with longtime holding Dolby Laboratories, Inc. (NYSE:DLB). Dolby Laboratories, Inc. (NYSE:DLB) is a well-run business led by a visionary founder (with significant insider ownership). It requires minimal capital and continues to be an innovative leader in its field. These qualities, combined with a pristine balance sheet, had staved off the urge to sell for a couple of years as the underlying business essentially treaded water; the company still struggles to grow revenue from mobile devices and other products enough to offset the decline in revenue from sagging PC sales. The result? Another quarter of year-over-year declines in both revenue and earnings. With no catalyst in sight to reverse this course, there are a number of more compelling investment options available with a higher likelihood of market-beating returns.

Among the reasons to sell discussed in this article, I intentionally left out valuation. While valuation is certainly relevant in making investment decisions, I’d argue that trailing-12-month metrics are much less useful than a company’s future value. This is a lesson that almost has to be learned the hard way; I just learned it when I decided to sell Netflix within the past year based on valuation concerns.

In reality, the original investment thesis for Netflix was still intact thanks to tremendous subscriber growth and the added benefit of award-winning original content. One look at all of the positive news on the company (and its stock chart!) makes the decision to sell based on trailing valuation metrics look like a big mistake thus far. In this case, it seems it would have been much wiser to “hold ’em” rather than “fold ’em.”