Worst Stock in the World

Okay, it’s not really the worst stock in the world — it didn’t fall to zero, and the list is only of stocks that trade on the major U.S. exchanges — but JDS Uniphase gets dishonorable mention in today’s WSJ. It is named “worst 5-year performer”, which can’t be thrilling for JDSU shareholders or management:

The Internet-stock craze of the 1990s spawned many bubbles. But few compare to the mania surrounding fiber-optic communications. And no company rode that mania more than JDS Uniphase Corp.
….In March 2000, JDS carried a market value of more than $100 billion, more than the combined total of Ford Motor Co. and McDonald’s Corp. At the time, JDS had annual revenue of roughly $3 billion, and hadn’t recorded an annual profit since 1996.
Then it all ended. Internet traffic grew, but not at the mind-boggling pace some had predicted. Network operators stopped buying new equipment. Equipment makers, JDS’s customers, stopped buying components. Several of those customers, it later turned out, had fudged their financials to overstate their growth.
One statistic tells the story. In 2000, sales of telecom fiber-optic components totaled $15.5 billion, according to research and consulting firm RHK Inc. in South San Francisco, Calif. Last year, the total was $1.5 billion, down 90%.
That, more than anything else, explains why JDS was the worst-performing stock over the past five years among 1,000 companies in this year’s Shareholder Scoreboard. The value of $1,000 invested in JDS at the end of 1999 had shrunk to just $39 on Dec. 31, 2004, compared with $890 for $1,000 invested in the Standard & Poor’s 500-stock index. That’s an average annual return of minus 47.7% for JDS, meaning that the shares lost roughly half their value each year for five years.

Remarkably, or maybe not, JDSU management has managed to find a silver lining, despite the stock having fallen another 41% in 2005:

“We are better positioned than some of our competitors to weather the ups and downs,” [CEO Kevin] Kennedy says.

Now there’s optimism for you. That’s sort of like someone being run over repeatedly by a truck, but then putting a brave face on it by arguing that at least they know what they’re in for if it happens again.

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  3. Google Confounds the Amateur Stock Pundits
  4. Sequoia Does Stealth Distribution of Google Stock
  5. Pension-Funding Problems

Comments

  1. C. Maoxian says:

    There’s an odd sort of survivorship bias at work: JDSU is still listed. ;-)
    Think of the hundreds of one-time fliers that have disappeared altogether: eToys, Pets.com, Mortgage.com, MarchFirst, PSINet, theglobe.com, etc. ad nauseum.

  2. Brent Buckner says:

    CEO Kevin Kennedy’s comments may be entirely sensible in talking about the business; your comments are focused the stock price.

  3. Paul K. says:

    Brent — You’re an optimistic fellow! I take your point — my comments are focused on the stock price — but even assuming Kennedy is correct then his better ability to “weather … ups and downs” should eventually show up in the shares.

  4. JDS Uniphase!

    Infectious Greed writes: Infectious Greed: Worst Stock in the World: Okay, it’s not really the worst stock in the world — it didn’t fall to zero, and the list is only of stocks that trade on the major U.S. exchanges — but JDS Uniphase gets dishonorab…

  5. Brent Buckner says:

    “Should eventually”. Yes, quite. I note that misvaluations have been known to persist for years (or even decades).
    If JDS has done a good job in converting to moreso variable cost than moreso fixed cost it may take a drop from current demand levels for the change to be apparent to a skeptical equity market.