This company raised two red flags that made me not want to own it anymore.
September 22, 2021
I’ve sold exactly one stock over the past seven years. That’s entirely because I’m a relatively conservative investor who carefully buys shares in companies for which I have developed a long-term thesis for. I don’t sell because the share price has gone up or down and I don’t trim my position if a stock I own has tremendous growth (though I may stop adding new money to that position).
In theory, I would sell shares or my entire position if my thesis breaks, but that hasn’t happened. In fact, I can’t even think of a time I considered selling a stock because the company made some sort of deviation from its plan that caused me to reconsider whether I wanted to own it.
The one stock I did sell, however, threw up a number of what I consider red flags and since I’ve sold it, I have only come to feel better about the decision. That, however, does not mean my choice to sell was the correct financial move. This company has continued to perform well and it has positioned itself to succeed for at least the next few years.
Despite that, I no longer wanted to own a piece of this company and I’m glad I sold my shares.
Relatively early in the pandemic, I closed my position in WWE (NYSE: WWE) because I did not like how management treated its employees. The company had wide-scale layoffs of behind-the-scenes and on-screen workers despite the fact that its revenue remained largely intact despite the pandemic.
Yes, the company had an added expense when it decided to create a live venue full of screens filled with virtual fans, but it also signed a $1 billion deal to move its streaming network to NBC’s Peacock streaming service. In addition, WWE has steadily seen its TV revenues rise as new contracts with Comcast (NASDAQ: CMCSA) and Fox (NYSE: FOX) as well as new global deals kicked in at much higher rates than what the company was previously taking in.
Laying off employees because falling revenues forced you to makes sense, and, in some cases, can’t be avoided. In this case, WWE did it to be more profitable. It also let on-screen talents go who had been asking to be released from their contracts before the pandemic. The company had denied those releases in the before times when those wrestlers could have easily found work with other companies or on the independent scene, then granted them when most of those job options dried up.
These were cold business decisions. They made bottom-line sense but left a bad taste in my mouth at a time when I was also questioning the company’s on-air product.
WWE clearly has years of significant profit ahead and it can’t really screw that up because its main TV deals last five years. I do question, however, if the company will be a strong position when its deals come due. Calling the company’s man shows, “Raw” and “Smackdown,” stale would be putting it mildly. That’s something that has become even more obvious with the rising success of rival promotion All Elite Wrestling (AEW) which airs on TNT two nights a week.
AEW has only been around for two years, but it has quickly gone from upstart promotion to legitimate contender. That has been helped by WWE making some big-name talents available by releasing them and having a few others switch companies when their deal came up because AEW has a much better reputation as a place to work.
Taken on their own I may have overlooked the poor creative direction of the company and the disappointing way it treated employees. But when both are going on at the same time which has greatly aided the competition, selling became something I began to think about.
The final call, however, came when it became apparent to me that I no longer felt good about owning WWE shares. I do actually think that financially, at least over the next 3-4 years, I have likely made a mistake, but I’d rather feel good about all the stocks I have personally selected for my portfolio and that was no longer the case with this one.
Our advisors recently took a closer look at several of our previous 7investing recommendations, and we found a few things we didn’t love. Click here if you’d like to see the specific red flags that we have identified.
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