Pains in the bottom: With some exceptions, smaller firms struggling

  • Article by: PATRICK KENNEDY and JOHN J. OSLUND , Star Tribune
  • Updated: March 24, 2001 - 10:00 PM

While we were pleased and even a little surprised at the strong overall market performance of the Star Tribune 100 during the past year, a closer look reveals the gains mostly were due to the performance of companies on the top half of the list.

The Bottom 50 more closely resemble the broader market trends, which are sharply negative. The collective market capitalizations of our Bottom 50 dropped 35.5 percent. And tech companies in the Bottom 50 were hit especially hard.

"That's where the real pain has been experienced in this market," said Lee Kopp of Kopp Investment Advisors in Edina.

Since the Bottom 50 represents less than 4 percent of overall ST100 market value, it was not enough to negatively affect the total list. In all, 35 companies in the Bottom 50 saw their market caps decrease.

But there were exceptions. The hottest Bottom 50 company is Christopher & Banks, the reborn retailer of women's speciality apparel, whose market value jumped 324 percent. The company, formerly known as Braun's Fashions, now focuses on working women ages 35 to 55. The strategy has paid off; sales rose 44 percent and profits rose 170 percent last year.

Two others saw their market values increase more than 100 percent: homebuilder Rottlund and Ag-Chem Equipment Co., which is being acquired by Agco. Barbeque rib vendor Famous Dave's market value soared 84.2 percent. Ummmmm, good.

A harsh welcome

The market was less than kind to newcomers, those companies selling stock to the public for the first time. But the overall trends continue to hold. The largest company that made an initial public offering (IPO) prospered while the share value of smaller companies sank.

NRG Energy, the largest Minnesota company to go public last year, was the only one trading above its offering price on March 13.

The three other IPOs that debut on the ST100 list -- Pemstar (No. 45), Entegris (56) and American Medical Systems (87) -- all closed on March 13 below their initial offering prices.

The time period we chose to measure for market valuations captured the market's March 2000 peak and this month's trough (through Thursday.).

At the peak, investors thought enough of three members of the Bottom 50 to give them market valuations in excess of $1 billion: Retek at $2.96 billion, ValueVision at $1.87 billion, and Techne Corp. at $1.69 billion. One year later, however, all three saw huge market value declines.

The Bottom 50 did not fare well in the revenue department, either. While the top half of the list continues to drive the total sales upward, the revenue threshold to make the bottom of our list sank.

This year's smallest company is Rehabilicare, with $60.3 million in revenues. Last year the smallest company on the list, Sunrise International, had revenues of $74.8 million. The floor hasn't been this low since the sixth annual Star Tribune 100 in 1997.

Kopp expects to see more belt-tightening in this group and across U.S. industry in general.

"If you are not driving the top line, you better manage your expenses," he said. "There will be a lot more cost cutting going on."

The fact that the threshold has dropped also is a result of the number of mid-market transactions that took companies off the bottom of the list.

While the Top 10 on the list have shown remarkable staying power over the past 10 years, the bottom of the list has seen a great deal of turnover in just the last year.

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