There's nothing that sends a stock tumbling faster than the news that a big stakeholder is bailing out. That's what happened to Horizon Industries, a maker of residential and commercial carpets.
In May, Ed Ralston, who held a 7% stake, said he would sell his holdings, when the stock was trading at 12 a share. The company was once being eyed as a buyout target of carpetmaker Beaulieu of America, which holds 10% of the stock. By June 12, Ralston, who was buying along with Beaulieu, had cut his stake to 4.5%. The stock is down to 7 5/8, and Ralston isn't through selling yet.
It isn't known whether Beaulieu, a subsidiary of a Belgian carpetmaker, will follow suit. But that added risk hasn't discouraged investment manager Jim Awad, who is buying up shares. Awad is convinced Horizon is a bargain at its current price, based on the earnings turnaround he sees and the intrinsic value he puts on the company. "The stock is worth at least 13 a share," he says. Awad figures that Horizon, which was in the red in 1990 and 1991, will post revenues of $350 million next year, vs. this year's estimated $318 million, and earnings of 90 cents to 95 cents a share next year, up from 70 this year.
Awad is betting that with the drop in the stock's price, management will opt to repurchase shares. He also suspects that the takeover interest in Horizon is by no means over. Horizon Vice-President Barbara Lance declined comment on the speculation.