For investors, the hardest question often faced is when to sell a stock. Even when a stock issues a profit warning, if you are a long-term investor, that doesn't always justify one to pull the trigger.
There is no question it's easier to buy a stock than to sell. With that being said, today I was faced with an easy call. I call it the "three strikes and you are out" policy. If a company disappoints me three times in the span of six months, you're out (How long until pitchers and catchers report to spring training?).
Retalix (NASDAQ: RTLX) the Israeli provider of software solutions to retailers and distributors, today announced that it was going to miss its earnings estimates for the quarter. This is not the first time this has happened -- last quarter the same thing happened.
Retalix is a company that has been rumored to be a takeover candidate numerous times. A stone's throw from its headquarters sits SAP (NYSE: SAP), one of the potential buyers. To make matters worse, the company had planned a management reorganization, with current CEO Barry Shaked stepping aside and becoming chairman, and Avinoam Bloch, a longtime employee of Retalix, moving into the COO chair. i applauded that move, as it appeared that the company needed to be invigorated. The company was lacking a certain energy, and some fresh blood was just what the doctor ordered. Unfortunately, Avinoam resigned from the company yesterday, citing "professional differences" with Shaked.
I quit. This is a company with good technology that has been not been executing the business model well. It sure seems that no one is going to buy it and pay much of a premium. Until the company can prove to investors that it is headed in the right direction, this is one of the few clear-cut cases that you should sell.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has a position and is long RTLX, but may sell and close out. He has no position in any other stock mentioned as of 1/2/08.
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