Smaller firms feel heat from volatile market Companies try to keep stock losses in perspective

Investing

October 18, 1998|By Bill Atkinson

DOUGLAS L. Becker, president of Sylvan Learning Systems Inc., made the mistake of checking the company's stock price on a day recently when the market was being ripped apart.

What Becker saw was grim. Sylvan's stock had slid to a 52-week low of $18.25 on Oct. 5 -- sliced in half in a little over two months from a high of $36.875.

"I was just looking at it, shaking my head," Becker said. "That's kind of a stunning decline. I walked into the lobby and it was the same building, the same people, the same product. It is not as if the top two floors of the building have been cut off."

Little wonder why executives who run small- and middle-sized companies are frustrated by the stock market. One minute investors are enamored by their potential and puff up their stock prices, and the next minute they dump them into the deep freeze.

The Russell 2,000 index, a proxy for the performance of small- and middle-sized companies, is down more than 21 percent since the beginning of the year, which is considered to be a bear market.

Publicly traded companies in Maryland have faired poorly, too. The Sun-Bloomberg Maryland index, heavily weighted with small- and mid-sized companies, is also nearing bear territory, down nearly 18 percent. Only 21 of the 96 companies in the index have positive returns for the year.

"My body is black and blue all over," said Thomas K. Ferguson, president and chief executive of Mason-Dixon Bancshares of Westminster.

The banking company's stock is down about 9 percent year-to-date, and it fell to $26.50 Wednesday, a 52-week low.

Local banks have been hit hard. First Mariner Bancorp is down about 8 percent year-to-date; Provident Bankshares Corp. is down 24 percent; and Mercantile Bankshares Corp., a company many view as a haven in tough times, is down about 19 percent.

So what can executives do to boost the price of their shares? They can buy back stock and hope that will prop up the price, they can put the company up for sale banking on a payday for shareholders, or they can keep running the business and forget about where their shares are trading.

"You can't agonize about things that are not in your control," said George D. Pillari, chairman and chief executive of HCIA Inc., a Baltimore-based firm that develops information systems for hospitals, health-insurance companies and pharmaceutical manufacturers.

Pillari could easily obsess over HCIA's share price, which has dived more than 60 percent since the year began, and traded in the $4 range last week, but he is not.

"You just have to ride it out," he said.

Shareholders aren't always so patient. An influential Provident investor is so angry with the stock's performance he is trying to rally other investors to jawbone executives into selling the company.

Ferguson has had dealings with unhappy shareholders, too.

"I just got a call from a stockholder saying, 'What are you going to do about it [the stock price]?' " Ferguson said. "The feeling I have is one of being resigned to accepting that there isn't anything that I can do about it. We are the same company today trading at 13 times earnings that we were six months ago when lTC we were trading at 16 times earnings."

Ferguson says investors have gotten used to 20 percent returns in their portfolios, and when shares of small companies began falling, they bailed out.

"There seems to be an element of panic, almost an attitude of: 'Get me out at any price before I have any losses,' " he said. "I think we have gotten spooked."

But he can't blame shareholders for being angry.

"All I can do is be in sympathy with them," he said. "I just got my deferred compensation investment statement, which is heavily in our stock, and I feel the pain."

Sylvan's Becker said the drop in the company's stock has made him rethink the fundamentals of the business. When the market was flying, Sylvan could issue more shares to the public and raise money for expansion. But with the stock in the tank, growth has to be financed with Sylvan's earnings.

Becker is relieved the sharp drop hasn't come until now because the strong stock market over the past several years gave Sylvan time to fortify its balance sheet and build the business.

"If this [decline] would have happened two years ago, it would have been a disaster," Becker said.

He is not optimistic about prospects for the market as problems in overseas economies fester, and the threat of a year 2000 computer glitch looms large.

"The next couple of years are going to be very rocky," Becker said. "We just have to keep our head down and run the company for the long term."

Becker has found in recent months that misery loves company.

"At least we don't feel singled out," he said.

Pub Date: 10/18/98

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