The Rubicon Project: Who And Why Selling Is Creating A Bargain Price?

If profit is investors motive. Why or who sells a stock worth a dollar for 50 cent? This is an enormous and exciting topic. Charlie Munger's sage advice, "think forwards and backwards - invert, always invert". Focus your efforts capitalizing on overlooked yet simple investing techniques.Why bargains happen is too vast and intricate a topic for complete coverage in a blog post. Instead, this post will cover one significant driver of this price inefficiency. Rule-based institutional transactions are often the catalyst of a stock's inefficient price. The financial entity's investment charter often drives irrational buying and selling.

The topic of who sells a dollar for 50 cent can include overreaction to changing fundamentals, drop in stock value (fear/greed), career risk, liquidity requirements or a financial institutions' investment charter. An investment charter includes style (growth, value, market size, specialty) that if violated the stock sold regardless of positive exceptions. There exist over 7,000 mutual funds, near 2,000 ETFs and approximate 11,000 hedge funds. The investment behavior of these institutions covers a large part of the buying and selling volume. So, this activity creates short and medium term buying or selling opportunities. Investors can exploit these price inefficiencies.

"There's only one reason a share goes to a bargain price: Because other people are selling. There is no other reason. To get a bargain price, you've got to look for where the public is most frightened and pessimistic." Sir John Templeton.

This brings me to an oversold idea, The Rubicon Project (RUBI). It fell victim to institutional selling based on growth attribute noncompliance. Rubicon's sales growth missteps forced their original institutional base to sell. Also, recent brokerage sentiment reinforced RUBI is no longer a growth story at least in the short term. At first, value institutions sat on the sidelines. But, they are trickling back.

No credence is given to Rubicon's beneficial exceptions. Or, the mean reverting -60% 52-week price change. Rubicon's favorable exceptions ignored by selling growth institutions include the strong financial position with 3.88 per share in cashno debtpositive cash flow, high gross margins versus the current $5.55 price or $1.77 enterprise value per share. Last week on 06/07/17 the stock closed at $4.69, 68% off its 52-week high of $14.79 and 75% from the all-time June 2016 high. The stock has drifted 15% higher over this past week to close on Friday, 07/16/17 at $5.55. RUBI still warrants a closer look.

The Rubicon Project (RUBI) sells a technology solution to automate the buy and sale of a wide range of advertising units for buyers and sellers. 

Valuation

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Disclosure: Long: RUBI.

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