The company announced that its senior executives and directors had agreed to convert a total of approximately $400,000 that is owed to them into restricted common stock at $0.25 per share. They also announced that all future compensation would be paid in common stock, until the company has the sufficient amount of cash flow from operations to pay them in cash.
The company’s CEO stated that the move was the first of several initiatives to improve its balance sheet, and that it would improve its capital structure and access to capital, as well as further align senior executives with the interests of shareholders. To see the full announcement go to: http://finance.yahoo.com/news/Global-Investor-Services-bw-14739416.html.
The announcement marked the first time in my 32 years in the financial industry that I have seen or heard officers and directors of a public company willingly convert their salaries into restricted shares at a premium to the market. In this case, the premium is 233% higher than yesterday’s closing price of $.075 per share. Not only is the conversion price for current and future salaries at a premium to the most recent market price, but also it is significantly above the shares’ 52-week high of $0.19.
Follow up:
For any company to make an announcement of this magnitude and receive little interest from investors is telling. It indicates that there is a whole generation of investors who do not understand the essence of investing in the stock market. The primary reason anyone should purchase the shares of a public company is because of the belief or conviction that the management team is growing their particular business.
The more that management believes in its company, and the more conviction it has, the better it is for a company’s shareholders. It’s very hard to find managers of publicly traded companies who are willing to take bold steps such as the ones that have been taken by the management of Global Investor Services.
To have senior executives willing to take their compensation in shares is a major plus. To have them take their compensation in shares at a 233% premium to the market is an overwhelming vote of confidence. THEIR VOTE OF CONFIDENCE MEANS THAT THEY BELIEVE THAT THE SHARES OF GLOBAL INVESTOR SERVICES ARE WORTH $0.25. If they did not believe this, they could have quit and taken a job elsewhere. Since they obviously believe that the shares are worth more than they are trading for, investors should take notice.
Obviously, the management team is willing to put their money behind their belief. Shareholders and investors, especially under the present economic circumstances that make it hard to determine which public companies will survive, cannot ask for anything more from a management team. When recently grilled by Congress, did any of the CEOs of the automobile or financial companies make such an offer?
One of the key things that I learned in the 1966 to 1982 super bear market is that investors should look to invest in those companies with management teams that control significant equity stakes in their companies. When capital is difficult to come by, and it usually is during a recession, it is imperative that management has a reasonable equity stake so that they will not cut and run when cash gets tight.
For this reason, I have always avoided purchasing shares in companies that do not meet this criteria. General Motors is a good example of why I follow this discipline. For as long as I can remember, it has had a revolving door of officers, directors and CEOs who have owned little or any shares in the company.
Those who control General Motors currently hold 0% of its shares according to Yahoo Finance. The lack of management having a stake in the company is the primary reason I have never recommended a purchase of GM shares in 32 years. It’s also why I suggested that the shares be sold at $30 in one of my Equities Magazine articles several years ago.
The biggest question that investors and shareholders of Global Investor Services should be asking themselves is why would a management team make such a bold decision to be paid in shares at a conversion price in which the shares have not traded at for more than a year?
Should the shares not get to $0.25 and remain at the current price of $.075, the company’s senior management would in effect be taking a 70% haircut on their salaries. I suspect that the answer is that they believe that either the shares are going to go up or that they are going to generate the sufficient cash flow to pay themselves. In either case, the shares are likely to head north.
Global Investor Services is not a development-stage company. It has 2,000 customers. Since it recently changed its business model and is now doing a majority of its marketing and fulfillment “online,” it has scalability. This means that it can grow its business exponentially without having to add more than a couple of additional employees. I suggest that in doing your due diligence, you visit their web site (http://www.investview.com/) and check out their online investor education offerings.
Presently, Global Investor Services is the “only” publicly traded pure play in the online investor education industry. The other former pure play, Investools, which I recommended back in 2003 at under $0.25 per share (it subsequently went to as high as $14) before it was swallowed by thinkorswim, which is currently being swallowed by Ameritrade.
If you want a stake in a company that is well positioned to potentially train and coach millions of frustrated investors who have lost money on the advice that they have gotten from professional advisers, owning shares in Global Investor Services is the only option.
Until the announcement, Global Investor Services had been my most speculative recommendation and personal holding in the stock market. I am not so sure of that now because the recent bold decision made by its management tells me that it may very well prove to be my safest holding.
Given that Global Investor Services’ management is willing to make a big bet on themselves, I suggest that every investor give serious consideration to buying and holding its shares. For more information on the online financial sector and the companies I am recommending, I suggest a visit to www.onlinefinancialsector.com.
