When a company wants to expand its business, enter new markets, or increase cash flow, it may choose initial public offerings (IPOs) as sources of funding and go public. However, becoming a public company can pose challenges for innovation, as the focus may shift towards pleasing stockholders rather than innovating. This shift can lead to struggles for the company. Nonetheless, some companies have overcome these challenges and become market leaders again. In this article, we will explore why public companies may face difficulties, how to profit from struggling public companies and share examples of companies that have made a comeback.
Why Public Companies Struggle?
To understand how to profit from struggling public companies, we need first to understand the reasons behind their difficulties: When a company decides to become a publicly traded business, there are some downsides to consider. One of the main concerns is the increased transparency and disclosure requirements for potential investors. Companies that go public must provide regular updates to the public about their financial performance and activities, which can be expensive and time-consuming. This process can also attract unwanted public scrutiny, and companies must be prepared for this.
Public companies must follow the Securities Exchange Act of 1934 when it comes to periodic financial reporting. However, newer public companies might find it challenging to comply with these requirements. They also need to follow other rules and regulations that are monitored by the SEC.
Complying with regulatory requirements can be very expensive. As more rules are added to protect investors, these costs keep increasing. Some of the additional expenses include generating financial reports, paying audit fees, maintaining investor relations departments, and overseeing accounting committees.
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Ways to Profit from Struggling Public Companies
Here are a few strategies for investors who wish to find a way how to profit from struggling public companies in 2024:
- Short Their Stock
Short selling is a trading strategy wherein you borrow a security that you believe will decrease in price and sell it in the open market. You then repurchase the same stock at a later time, hoping to buy it back at a lower price than the selling price. You can then return the borrowed stock to your broker and keep the difference as profit.
Sometimes, in the market, the momentum can be a crucial factor, and a struggling company with a stock that has negative momentum may continue to decline. Although it is a more advanced strategy, short selling capitalizes on this momentum to create gains, which can sometimes be substantial for those who are looking to know how to profit from struggling public companies in 2024.
- Accumulate Stocks of a Good Company
The recent downturn in the stock market may be discouraging for investors, but it gives an opportunity to buy good stocks at a lower price, especially for those who plan on holding onto them for the long term. Investors have many options to consider, including undervalued stocks of good companies that are not necessarily underperforming due to market conditions. If you find a good company that is valued lower than its fair price, purchasing its stock may be a wise strategy for long-term investment for those who want to know how to profit from struggling public companies.
- Buying Into Weak Companies Debt
Distressed debt investing involves buying the bonds of businesses that have either gone bankrupt or are likely to do so. Companies that have taken on too much debt are often targeted. Investors aim to acquire company bonds at a lower price to become their creditors, which provides them with significant influence during the company’s restructuring or liquidation process. With this authority, investors can play a vital role in determining the future course of action for the company. For those who have considered strategies for how to profit from struggling public companies, buying debt is another effective way to earn.
Examples of Companies That Were Struggling and Are Now Profitable
- Crocs
Crocs was established in 2002 with a focus on practicality rather than style. The brand’s products were targeted towards people who enjoy boating or gardening, especially Northeasterners. Crocs’ clogs, which come with an anti-slip heel and aerating holes, are known for their comfort and practicality. They became popular among professionals who work in kitchens, hospitals, and other fields that require dependable and comfortable footwear. While not known for their style, Crocs’ practicality made them highly useful.
In 2006, the brand shifted its focus towards being eco-friendly and useful to the masses, which led to a significant increase in fourth-quarter revenues. The brand’s revenue increased by 236% to $112.9 million compared to $33.6 million in the previous year after expanding beyond its original niche market.
After selling well for a few years, Crocs started to lose their popularity. First, there were warnings that the loose-fitting heel strap might cause foot problems. Then, people got tired of the same basic design that had seemed practical at first. Over the years, the company had its ups and downs. In 2018, Crocs said it would shut down all its manufacturing facilities and 160 retail stores. The company’s CFO resigned, and it looked like the brand might not survive. But there’s more to the story.
When Andrew Rees became CEO of Crocs in 2017, he knew it would be a hard task to make the brand relevant again. Instead of sticking to old strategies, Rees focused on targeting new audiences, making Crocs fashionable instead of just practical. This change in strategy saved the brand from bankruptcy, and it became a “must-have” shoe. Even Post Malone sings about the brand in his song “I’m Gonna Be”, showing his love by creating several new shoe designs, one of which sold out in less than two hours. He is now working on his fourth collaboration with Crocs.
Crocs has become the 13th most popular brand of footwear, up from 30th in 2017, in just two years since Rees took over. Despite announcing manufacturing and store closings less than a year ago, the brand has collaborated with designer Vera Bradley and others. Crocs has successfully managed to retarget its audience from boat enthusiasts and gardeners to VSCO girl fans today. Now, that is how to profit from struggling public companies!
- Apple
In 1996, Business Week featured Apple’s famous trademark on its cover for a lead story titled “The Fall of an American Icon” During this time, CEO Gil Amelio faced challenges in keeping Apple afloat in a world increasingly dominated by Windows-Intel-based PCs. Wired magazine published an article titled “101 Ways to Save Apple,” which included suggestions such as “Sell yourself to IBM or Motorola.”
In September 1997, Apple was on the brink of bankruptcy with only two months left to survive. Steve Jobs, one of the co-founders of the company in 1976, agreed to step in as CEO to save the company. This news delighted faithful fans of the original Macintosh, but the general business world was not expecting much from him. However, within a year, things changed dramatically at Apple. Despite people’s expectations that Jobs would invest in the development of technologically advanced products or engineer a deal with a major corporation such as Sun, he did neither.
What he did was unexpected. Apple underwent unexpected changes when it reduced its size and scope to adapt to the reality of being a niche producer in the personal computer industry. The company streamlined itself to a core that would allow it to survive in this highly competitive market.
Steve Jobs convinced Microsoft to invest $150 million in Apple by exploiting Bill Gates’s concerns about the impact of a failed Apple on Microsoft’s ongoing struggle with the Department of Justice. Jobs streamlined Apple’s product line by reducing the number of desktop models from 15 to one. He eliminated printers, peripherals, development engineers, and software development. Additionally, he reduced the number of distributors and national retailers. Manufacturing was outsourced to Taiwan, and a new web store was established to sell Apple products directly to consumers, bypassing distributors and dealers.
Steve Jobs’s strategy to save Apple involved directly addressing the company’s fundamental problems with a focused and coordinated set of actions. As a result of his astute strategy, Apple was able to create world-changing products such as the iPhone, iPod, and Apple Watch. Without Jobs’s intervention, we might never have known Apple as the successful and innovative company that it is today.
In 2012, Apple became the most valuable company in history, with a market cap of $621 billion. Nonetheless, this achievement was only the start of the company’s impressive growth. By 2024, Apple’s market capitalization had skyrocketed to $2.61 trillion, leaving an incredible legacy for the world to remember, thanks to Steve Jobs.
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- Nintendo
Nintendo has repeatedly dominated the video game industry, making it seemingly invincible. But all it took was one lousy console to nearly take it down. Off the back of the very successful Wii and Nintendo DS systems, the company released its least successful console in 2012, the Wii U. The company’s now-late CEO, Satoru Iwata, took a 50% pay cut to stay afloat, while other executives’ pay was reduced by 20-30%.
They also reached several agreements for IPs to appear at amusement parks, release the NES Classic Edition and release the NES Classic Edition and apps for smart devices, including “Pokémon Go.” This provided enough cash flow to develop the incredibly successful Nintendo Switch, saving the company without having to fire a soul.
- Jack in the Box
In 1993, Jack in the Box faced a crisis when many of their restaurants were hit with an E. coli outbreak. The contaminated hamburgers caused four deaths and over 175 hospitalizations, some with permanent brain and kidney damage. This led to a halt in expansion plans and staff layoffs. However, Jack in the Box managed to recover by implementing strict food safety standards and launching a clever marketing campaign.
Today, Americans still love Jack in the Box, but there is a high demand for their food, including their famous tacos. Jack in the Box sells 554 million tacos annually, according to a 2017 Wall Street Journal article. That’s 1000 tacos every minute! Wonder know how to profit from struggling public companies? It’s wise to invest in a strong company facing a temporary crisis.
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Wrapping Up: How to Profit From Struggling Public Companies in 2024
Public companies may encounter difficulties due to macro or microenvironmental factors affecting their business. However, the financial market provides several opportunities to earn profits. You do not need to wait for a positive trend to invest in struggling companies. Although fairytales like Apple’s success stories do exist, they are not always the case, and the fact that a company is public doesn’t prevent it from being a failing business. Therefore, it is essential to conduct thorough research before investing. We provide several investment guides that can help you enhance your investment skills, so keeping yourself informed is the best strategy.