Sunday, September 09, 2007

Cheap Stocks Random Notes: The Frivolous Lawsuit of the Week: Jones Soda (JSDA)

The sharks are circling Jones Soda (JSDA) since the stock tumbled from the $30's to $10; yes, here come the lawyers and their class action lawsuits. We owned the stock, (yes, way out of character; search the site for previous posts) we sold it when we thought the valuations were beyond ridiculous and priced for utter perfection, we even received some very nice e-mails from "investors" who not so politely told us how stupid we were.

This particular suit, Hagens Berman Sobol Shapiro , takes the cake. Here is an exerpt from the press release:
The complaint generally charges that Jones Soda and the executives made misleading statements about an expansion into major retailers, such as Wal-Mart, Kroger, Safeway and Kmart, with a new 12-ounce canned soda and a major marketing campaign. The "continued bullish statements" caused the stock price to surpass $32 a share April 16, which more than doubled the company's market value, the suit says. But Aug. 2, the company reported significantly lower-than-expected canned soda sales and said it had difficulty getting the new products on retailers' shelves before the Memorial Day holiday, the suit said. The problems also caused the company to embargo an advertising campaign, and it "essentially bumbled the launch of Jones Soda 12-ounce cans," the suit says. The stock price, following two quarters of poor earnings results, has fallen 67 percent since hitting the record high in mid-April.

Give us a break. Not even flawless execution of the company's strategy was justification for the price of the stock. Whether or not Jones executives made misleading statements, we can't say. But we do know investors make mistakes, we sometimes get greedy, and our vision is clouded by the behavioral biases we struggle with. But we can't keep running to the lawyers everytime we get burned. Especially when we should have known better.

We aren't saying that corporate management is above reproach, and never at fault. We've seen countless examples in the past several years of fraud, and blatant disregard for shareholders. We're not convinced that this is the case with Jones Soda. We are sure, however, that investors need to take personal responsibily for their decisions. And we all make some very bad ones now and again.

*The author does not have a position in Jones Soda. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

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