There is a familiar pattern I've noticed. A company reports a quarter or two of poor results. Shortly thereafter, the CEO suddenly resigns without explanation. Shortly after that the SEC launches an "informal" investigation into some irregularities. Sure, the companies tell us all the events are unrelated, but how many coincidences can there possibly be?
Amkor Technology (NASDAQ:AMKR), the semiconductor chip packaging giant, is the latest participant in the unfolding sequence of events that fall before one another like so many dominoes. Following a string of disappointing quarters, President and Chief Operating Officer Bruce Freyman suddenly announced his retirement in August. The company did not give a reason for his departure, always a big red warning flag flapping in the breeze for me. Now word comes that the SEC has launched an informal investigation into possible insider trading.
Amkor exhibits three clear "sell" signals: earnings and revenue growth coming to a screeching halt; the abrupt, unexplained resignation of senior management; and the launch of an SEC investigation, however "informal" it may be.
For the past three quarters, Amkor has issued warnings that previous predictions for sales and earnings growth would not be met. Even as sales grew 30% last quarter, earnings dropped by 54% from the previous year. This was followed by Freyman's sudden departure at the end of August, only eight months after being promoted to president. And SEC filings show that while there have been 32 stock purchases over the past 12 months, there was a sale of 250,000 shares in May by the son of Amkor's chairman. The SEC hasn't said which transactions are of interest to it, though it did specify they occurred this year. The company was quick to point to language in the SEC's letter noting that the investigation does not mean any violations actually occurred.
While Amkor was struggling through the first half of the year, the rest of the semiconductor industry was enjoying one of the strongest periods on record. The company seems to be in disarray, and that has been reflected in its stock price. Shares that once traded as high as $21 a year ago now fetch less than $5 a stub.
When a company starts exhibiting all the outward signs of being about to implode, it's probably a good indication that it is. When it begins furiously waving red flags like the three above, it's a good idea to take notice. Coincidence is one thing; the inexorable fall of dominoes is another.
Fool contributor Rich Duprey thinks it's more than a coincidence that Coors Light and pizza taste so good together. He does not own any of the stocks mentioned in this article.
