A year ago Smart Technologies was hyped to be the next star stock, a tech name that investors could trust. And better yet, it was a Canadian company, so it offered buyers north of the border some diversification away from oil and gas.
Fast forward 12 months, and the stock that went public at $17 (U.S.) a share is now trading around $5.60. How'd that happen? It turns out that the growth opportunities in Smart's electronic whiteboard market aren't so promising.
Before the IPO, Smart had been in business for almost 20 years and claimed to have perfected its interactive whiteboards that are used in places like school classrooms and business board rooms. Because the product itself wasn't in question, the IPO was marketed with great statistics about how fast demand for these whiteboards was growing, with estimates that annual worldwide spending on hardware and software in the education information technology market would escalate.
That growth hasn't materialized. When Smart last reported quarterly earnings, it slashed its earnings guidance for the next fiscal year, citing weak education spending.
Yet the warnings signs have always been there. When BMO initiated coverage last summer, analyst Brian Piccioni wrote: "We believe state and local spending on education is unlikely to grow and may actually decline for the next several years." While stimulus funding could prop up demand for the next few years, the bigger picture "would likely present challenges for growth in the U.S. market in 2012 and beyond."
While the company has since celebrated achievements such as selling its two millionth smart board, its total numbers are still well below forecasts just after the IPO. And even though U.S. market penetration is growing, Mr. Piccioni noted that at some point Smart will hit a breaking point at which it is harder to expand. That same trend happened in Ireland last decade.
Not all is lost. Teachers who get their hands on these smart boards resolutely like the product, and Smart is the leading player in the space. So what it really comes down to is the funding for these boards, and some, such as Bank of America Merrill Lynch analyst Tal Liani believe "PTAs, states, the federal government will continue to support technology investment in schools at all levels."
And Smart is trying to adapt by new lines of its whiteboards at different price levels, to bring in different audiences. The company is also expected to sell more of its add-on product, such as electronic slate boards that students can use at their desks.