Pzena (PZN) Disappointment, Despair and Tax Loss Selling

A reader has asked about search strategies and I plan to do a more indepth post on search strategies including screening techniques.

Some people think of what Thanksgiving may bring while I look for tax loss selling in small, obscure, and deeply disappointing stocks.

Here is one company that might fit the bill:

To understand the depth of the disappointment we might compare PZN to other small caps:

I have had enough

When I go to www.pzena.com and look at their recent press release I see $13.7 million in managed assets so a low-end valuation of assets under management (AUM) might be 2% or (2% of 13.7 billion or $274 million divided by 65 million shares (both A & B) or $4.23. Enterprise value is about $200 million after subtracting $38 million in cash and EBITDA is around $45 million (there isn’t much capex with human capital). If assets stabilize, then perhaps asset values are above enterprise value–I might have a margin of safety.

Mr. Pzena almost blew up his firm with investments in Citigroup (“C”) during the 2008/2009 crisis. His firm’s equity performance since then has been good but he has to maintain good performance to turn his three and five-year performance record to top quintile performance. Go here: www.pzena.com

Ok, so that is a reason I would then go to the 10-K and dig deeper; there is enough here to make it worth my time to spend another hour or two. Please, this is NOT an investment recommendation since there may not be enough of a cushion to have a comfortable margin of safety. Also, there may be more attractive alternative investments than this one.

The main point is to look for disappointment. Now I have no proof that there is tax loss selling but with the company underperforming the Russell 2000 for several years and the recent decline during this tax loss window (Oct. – Dec.), I am making a supposition that some investors are making a tax decision rather than an investment decision.

Let’s revisit this in 6 months to see whether my thesis has more substance.