Small Cap Stocks

As we suspected, big changes are afoot at PTEC. Yesterday, the company announced strategic alternatives for the foolish investments made during the last two years, and intends to focus its business strategy on the core systems software (BIOS) markets in which Phoenix has a long-established leadership position.

Does this “new” strategy sound familiar? One only needs to look at the cash-flow statements and stock price of PTEC from back in 2007, to see how these changes could positively help shareholders. I believe the outcome this time around should be similar.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in PTEC. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

Phoenix Technologies (PTEC) definitely lives up to its name. Every few years the company is revitalized and then subsequently reduced to ashes by a greedy management team. Then from these ruins a new, Phoenix is born again under the leadership of a different cast of characters. This ability of multitudes of corporate vampires to rotate in and out of PTEC, is really testament to the tremendous underlying profitability of Phoenix’s BIOS or Core System Software business.

The good news for followers of the PTEC saga, is that with the stock now hovering at fifteen-year lows, PTEC may be ready for another rebirth.

What Has Changed: New Board Additions and Possible PC Demand Pick Up
What got me interested again in PTEC was the recent spat between Ramius (a large shareholder of PTEC) and management. Ramius was also involved with PTEC a few years back during the last revival, and now they’ve been scooping up lots shares again of PTEC at near current prices in attempt to gain control of PTEC and set it in the right direction. Just the other day, PTEC announced that it had reached an agreement with Ramius to appoint five new board members to PTEC from the Ramius slate.

Of course it’s obvious what Ramius sees here. A depressed stock price, a strong balance sheet, and a highly profitable core business (despite the company’s massive losses from write-offs and other non-essential expenses). At the same time, it’s possible that if the economic recovery is real, we could see a pick up in PC demand, especially considering the release of Windows 7.

If Ramius, now firmly in control of PTEC, can succeed in cutting some more fat from PTEC and if sales pick up even modestly given a slight industry rebound, PTEC should once again produce strong cash-flow. A change in financial fortune, with some renewed product hype, should provide the backdrop for a new growth story that would attract the attention of other stock gamblers and push up PTEC’s stock price.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in PTEC. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.