A few years ago, Heelys' footwear product for children was all the rage. The company had designed a sneaker with a removable wheel on the heel that had taken the consumer market by storm. Below is a demonstration of the dual-purpose footwear in action:
The company's 2006 IPO was accompanied by much fanfare, as the company had high hopes of expanding its markets and designing innovative new product lines. Consensus analyst estimates suggested the company would grow its earnings 20+% per year for the next five years. When the fad was exposed for what it was (i.e. sales began to drop, and insiders started selling) the stock price took a huge hit, falling from almost $40 to the $2 it is today.
However, it continues to hold much of the cash it took in as part of the IPO at a much higher price. The company trades for $58 million, but has $90 million in current assets (including almost $70 million of that in cash!) and just $11 million in liabilities.
Unfortunately, the company largely remains a one-trick pony. However, it appears to have cut its costs to adjust to the much lower revenue environment, as the company is now close to break-even levels on an operating basis. The company also recently settled a slew of lawsuits related to its IPO, as angry investors who lost a lot of money received some consolation (mostly from the company's insurance providers).
The risk of course, is that the company uses its large cash holdings on a foolish investment that never pays off. Fortunately, however, the company appears to have made no such plan. In fact, the company under new management has shown a willingness to return cash to shareholders, with a $1 dividend at the end of last year. If the company continues to make progress in cutting its costs, it may be more willing to dish out more of its cash holdings to shareholders in the near future. With a stock price of $2, and cash on hand of almost $3 per share, this could bode well for shareholders.
Disclosure: None
