Investor foresight versus Kodak and others’ hindsight on ‘disruptive technologies’

The act of clicking through online photos never quite replaces the bittersweet nostalgia invoked by turning through the pages of a dusty old album, or so I once thought. But today, I follow Eastman Kodak on my tablet stock price app’, as it sheds two thirds of its value, so becoming the latest victim to disruptive technologies. We look at investor sentiment towards Eastman Kodak (NYSE:EK) and other stocks, including: Fujifilm (TYO:4901), Logitech (VTX:LOGN), HMV (LSE:HMV) and Yell Group Plc (LON:YELL).

The term "disruptive technologies" was introduced by C. Christensen in his 1995 article Disruptive technologies:catching the wave. A quick brainstorm of companies in the past which didn't make the "wave" included names such as the Palm Pilot, mini disc and the betamax.

Eastman Kodak and Fujifilm

‘Disruptive technology’ brings with it both opportunities and threats, and if not carefully managed, the latter for dominant suppliers in a market. Investor sentiment towards Eastman Kodak turned bearish towards the photography film giant as early as the summer of 2009. Since then short interest has almost doubled to 28% of total shares, which represents almost all of the lendable supply. Institutional investors who lend have equally almost halved their holdings to 24% of the market cap.’

Fujifilm Holdings was founded as Japan’s answer to Kodak. While Kodak has been running under negative cash flow for two years and earnings have halved, Fuji’s cash flow is still in the black and earnings are down by 20%. Although the share price has fallen by 40%, short sellers have not shown interest in the stock with less than 1% of total shares out on loan, a large amount of dividend arbitrage and institutional investment of funds who lend steady at 13.5% of total market cap’. Investor sentiment is therefore neutral/positive to Fujifilm.

Logitech and HMV

Logitech is working to refresh its product portfolio having recognized that it has been too focused on the traditional PC market with its mice and keyboards, which are being replaced by new touchscreen devices. Similar to Kodak, short interest began to build in this stock in July 2009, as the first iPad was being developed. Short interest peaked in April at 30% after which short sellers have continued to cover their positions as the share price fell to new annual lows. Still a heavily shorted stock, the company sees 18% of its total shares out on loan. Although short interest has declined, institutional investors continue to reduce their holdings to 18% of total shares, half the level seen at the start of the year.

While the CEO of Logitech complains that it should have been marketing products for the digital music market, such as wireless speakers and headsets, the beleaguered HMV is busy stocking its shelves with just those items in a bid to survive the shift to online music channels. Investor sentiment in Logitech follows that of HMW. Short interest in HMV peaked in December, and has since halved to 12% of the total shares, as short sellers took profits and the share price fell to unprecedented lows. Institutional ownership has similarly halved to 11.5% of market cap’. Both companies have complained about being too slow to market with new products which compliment new availing technologies.

Yell Group

More than a couple of Yellow Pages will be needed to help the little boy under the mistletoe this Christmas (if you remember their advert!), given that the most recent edition looks more the size of a pocket dictionary. Yell Group has been fiercely pursuing its long term online strategy as a marketing solutions company, but the share price continues to hold at unprecedented lows. Short interest holds steady at 19% of total shares, close to annual highs with almost all of its lendable supply out on loan. Interestingly, holdings of institutional investors has jumped slightly to 15% of market cap’. Some investors clearly see some value here.

Bottom line

Whether dominant players in markets where disruptive technologies are causing chaos are too layered with complexity to change at the rate of takeover of these technologies, or these companies are just not recognizing the potential opportunities and threat, investor sentiment is an early indication of who will win performance.