PFSweb Announcement Of Share Buyback Generated Minimal Enthusiasm (NASDAQ:PFSW)

Those familiar with my work are probably aware that I typically write about those companies where I retain a long position. Occasionally, I will also write about a stock or stocks that I have recently looked at, but have not yet made a final decision on a purchase. And, as you may have guessed, the majority of my recommendations are Hold, Buy or Strong Buy. PFSweb (NASDAQ:PFSW) was an exception when I gave it a Strong Sell rating back on November 19, 2022 when the price was a dividend adjusted $6.28.

The company had completed the sale of its LiveArea Labs business, a sale that was first announced in early July of 2021. The unsolicited offer of $250 million was greater than the entire market cap of PFSweb, and the company reported that the transaction had closed on August 27, 2021. After taxes and paying down the debt, PFSweb would still be sitting on $185 million, and also announced that they had retained Raymond James to explore strategic alternatives for those funds. As of the 2022 year end conference call on March 14th, management offered the following assessment:

Overall, we believe we are entering 2023 from a position of strength, we expect to leverage our more streamlined operational and financial foundation to support ongoing client growth. And we believe this strengthening position will also allow us to continue to evaluate strategic alternatives with Raymond James, with a strong priority on maximizing value for our shareholders admittedly challenging M&A market. We continue to target completing this review process in 2023.

A year and a half after Raymond James had been retained, it appears as though it has yet to come with an acceptable action plan for PFSweb growth. Meanwhile, the price of PFSweb has continued to deteriorate, hitting a post-divestiture low of $3.80. PFSweb took the opportunity to announce that it

has authorized a share repurchase program, under which the Company may purchase up to an aggregate of 1,000,000 shares of its common stock. The program will be in place for up to two years.

This occurred before the market opened on Monday, and the volume of shares traded spiked much higher. I’m not disappointed with a buyback taking place, although it’s a bit unusual to see a specific end date. It’s also less common to express the purchase as a specific number of shares rather than a particular dollar amount. The company filed its 10-K earlier this month showing it had “22,892,012 shares of the registrant’s Common Stock outstanding as of March 6, 2023,” so we are looking for a potential reduction in share count of less than 4.4%. That’s probably not enough to materially move the share price.

The Rating

In my prior article I gave the stock a Strong Sell rating. It is the only time I have used that designation in more than 700 articles. The reasons for that negative rating started at the top with the basic management team. That team had shown no ability, in my opinion, to turn around the basic order fulfillment and shipping side of the business.

It’s difficult to see how the labor intensive cost pressures and availability of workers will suddenly turn around. Or, how rising interest rates and other inflationary pressures will be dealt with. Apparently Raymond James hasn’t come up with a silver bullet yet either.

So why am I raising my rating? It’s almost entirely based on the share price dropping from that November 19, 2022 dividend-adjusted price of $6.28 to $4.00, a decline of 36.3%. It’s still no better than a Hold, but based on so many management failures in the past, I’m going to raise the rating only one notch – to a Sell.

In addition, since Raymond James appears to have been looking at this for more than a year and a half, and apparently hasn’t yet come back to management with a plan, one has to wonder if PFSweb is simply too small to succeed.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.