Catalyst Pathways – Four Ways to Supercharge the Turnaround
Once a stock goes below the $5 threshold, a significant amount of discipline, work, and patience are required in order to resolve the situation.
The first step is to recognize there is a problem and that extreme change is required.
The second step to fixing the stock involves implementing a turnaround plan, such as The Rubis Five-Step Turnaround Cycle.
Once a management team embarks upon a turnaround cycle, there are several ways a management team can supercharge the turnaround cycle.
The Four Ways to Supercharge the Five-Step Turnaround Cycle:
1. Unique Proprietary Advantage
2. Unique Financial Metrics
3. Secular Bull Market
4. Cash Burn
The first two items on the supercharge list are within management control. The third item lies outside of management’s control. Finally, if management can get the cash burn correct, that alone will further supercharge items 1 and 2 on the supercharge list.
Unique Proprietary Advantage: Typically, an asset or technology unique to the company in question. The value lies in the fact that a competitor(s) must buy your advantage to acquire it. The competitive set cannot duplicate the advantage on their own.
Unique Financial Metrics: The key here is identifying not only your golden metrics, but also metrics that can be improved. Management should start with golden metrics where the company performs extremely well compared to the industry. Anchor on these metrics, then identify important metrics across the industry. Combining the good and bad will allow Wall Street’s creative M&A juices to flow and generate interest in your story over time.
Secular Bull Market: A company operating in an industry in a secular bull market infinitely improves the ability to drive a turnaround. Investors will own everything in a secular bull market, as “rising tide lifts all ships.” The mentality becomes one of finding exposure to the industry trend rather than picking a particular company.
Cash Burn: The most overlooked, yet most important variable of a turnaround. The cash burn dictates the runway management faces to affect a turnround in the share price. Most companies overestimate the length of their turnaround runway. Remember, the runway is the cash burn runway divided by two.
For example, if you have one year of operating cash on the balance sheet, then your turnaround runway is six months.
Wishing everyone an epic start to 2024!
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