If a company has disappointed investors, it can take time to rebuild their faith.
This is the case for internet cloud services operator ASG, whose stock has slid almost 25 per cent since early February in the wake of a pretty upbeat first-half result. At 36¢, its shares are about a third of what they were three years ago, making it the cheapest IT services stock in Australia.
During that period, ASG has spent about $200 million on "cloud"-based technology and received two genuine takeover bids, which both fell through.
At its half-year result, it showed it was profitable and said it expects operating margins to be maintained for the second half.
Most importantly, it touted a burgeoning pipeline of bid activity and growth in its "New World" business. This is a user-pays software model, popular because companies can reduce costs by paying for software only when they're using it, as opposed to the old model where customers paid upfront for software and then were charged annual licensing fees.
Companies use ASG because it lets them afford to use the likes of SAP and Oracle in an "off the shelf"-type format.
So why are the shares struggling? The entire IT sector is finding life more difficult as companies and government departments reduce costs.
But the main reason is ASG's lack of cash flow, combined with high debts it used to fund its expansion.
Delivering on promises will save ASG, and there is much to be optimistic about. But not helping its cause is chief executive Geoff Lewis' high base salary of more than $900,000, plus almost $170,000 worth of "non-monetary benefits".
When you aren't making investors' money, a bit of humility can go a long way.
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