Analyst: “Ambassadors Group – Successful Turnaround Unlikely”

UPDATE: Since this was posted, Ambassadors Group announced the lay off of 40 workers.

The Ambassadors Group is likely to disagree: Ambassadors Group – Successful Turnaround Unlikely (EPAX) | Seeking Alpha. (Free registration required to read the entire article.)

Ambassadors Group is based in Spokane. In recent years, their annual revenue has been cut in half, founding executives departed without a meaningful explanation, and the company put its newly constructed corporate headquarters up for sale. The analyst notes positive developments such as tight control on expenses and the company continues to pay a dividend. Some executives have recently increased their shareholdings suggesting a sign of confidence in their strategy.

On the downside, this analyst notes the business relies on shady marketing techniques, and the number of students enrolled for 2014 travel programs has fallen by 12% from 2013, as previously enrolled students are withdrawing from the programs. The analyst’s concern is that enrollments are continuing to drop and the firm will eventually run out of cash. The 6.6% dividend is well above market averages and is a sign of risk.

The company is trying to sell its corporate HQ building but it remains unsold after one and a half years and a price drop from $13.3 million to $11.9 million:

This raises some doubts on the true value of the building. If company is unable to sell it for the indicated price and is not renting-out the unused half, maybe there is no demand for such office space in Spokane and the value of the building is significantly less than $11.9m.

The analysts main concern is long term declining enrollments indicate the turn around strategy is not working and the firm will eventually run out of cash.

85% of the company’s 218 employees are based in Spokane.

My take is that I would not rule out a turn around; however, numerous years of year-over-year declines in sales/revenue is worrisome. During this decline, revenues have been cut in half, total assets are down by a third, and net income was negative in 2013. Couple that with an on-going struggle to maintain enrollments and revenues, this makes for a difficult situation.


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