Our thesis behind buying Penson Worldwide (PNSN) was two fold: Penson Worldwide was drastically undervalued and it was an acquisition target.
Penson Worldwide still is drastically undervalued from a long-term perspective. From a very short-term perspective, the blood bath in the stock market has put Penson Worldwide’s earnings for this quarter at risk. Penson Worldwide derives significant revenues from providing clearing services to brokers. If this stock market blood bath reduces the number of transactions, it will adversely affect earnings of Penson Worldwide .
The hardest hit sector is financials. A logical buyer of Penson Worldwide is another financial company. Until the financial sector performance in the stock market improves, chances of a buyout have lessened.
History tells us that over a long period of time, volume of transactions increases. This long-term trend is beneficial for Penson Worldwide.
There is an increasing trend towards independent RIAs (financial advisors).This trend works towards the advantage of Penson Worldwide .
Further, the financial sector will not stay in the dog house forever; sooner or later Penson Worldwide will be bought out.
What this means is that the long-term case for Penson Worldwide has not changed, but the events of the last three days have changed the short-term case.
What to do now?
Those in the stock may continue to hold. New tranches should be purchased only after there is a sustained upturn in the financial sector or if the stock gets hit on a bad news such as earnings for this quarter.
Those not in the stock may initiate a scale in only after there is a sustained upturn in the financial sector or if the stock gets hit on a bad news such as earnings for this quarter.
