Friday File — A Personal Buy and some Check-ins

By Travis Johnson, Stock Gumshoe, November 8, 2013

I’m traveling today so I’ll try to keep it brief for you (“for a change,” sighs the patient reader) … this morning I had a limit buy order triggered on a stock I haven’t written a lot about for you, and there were also some quarterly reports that have made me think over the last few days, including a terrible quarter from Rosetta Stone (RST) that’s forcing a “buy more or sell” decision on me … and the latest updates from the Sandstorms (Sandstorm Metals, the sad sack which I gave up on a while back, and Sandstorm Gold, which I still own, both reported this week).

Rosetta stone update – buy more or sell?

This is a hard call for me. Rosetta Stone had a weak quarter, including a cash burn (though most of it was from an appealing acquisition), and they guided for more weakness to come — does that mean that their switch from kiosks to digital delivery and, more importantly, subscription/cloud offerings and new categories (kids, reading, more advanced languages) is not working? Or does it just mean that it’s moving more slowly? That’s really the question for Rosetta Stone investors at this point — when I wrote about it following the Value Investing Congress back in the Spring I noted that David Nierenberg of D3, a large holder of the stock, thought it offered tremendous upside based on its brand value and growing educational sales and, of course, its large cash pile — it was described as, in effect, a “busted” growth story that had soared and then crashed after blowing too much money on ineffective marketing… and he expected it to not get below $12 a share.

Well, it’s getting damn close now. As of June 30, Nierenberg’s funds still held a huge portion of the shares, more than 8%, we won’t know until the September holdings are released whether they’ve changed that ownership stake.

I recently bought a Rosetta Stone course for my daughter, who wanted to get some more practice in French, and she likes it and it seems like it’s worthwhile … but I also found, in buying the product, that it’s still a bit complicated to buy. The digital vs. CD vs. subscription vs. their “TOTALe” that lets you use it on a tablet or phone is not an easy decision, and it actually put me off deciding and ...

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