Should I Buy Educational Development Corp Stock?

Below is an article submitted to us by a guest writer with vast knowledge about UBAM and the stock traded on NASDAQ: EDUC 

We appreciate this writer’s unbiased opinion on the company unlike comments and posts from the writer ‘Monocle Research Accounting’ on Seeking Alpha who like other authors in support of EDUC know Randall White personally. Another article was conveniently posted this past week the day EDUC released their quarterly reports, and we will have a break down of this article, which repeats the same information from the first article. It should also be noted that Randall posted a link to the article in his fan page this week.

Randall, his son, and Dan O’Keefe recently bought such a large amount of stock that it was made public due to SEC rules and regulations. EDUC is also in actual paid employee’s 401K– all these things influence the stock price. I still question if you have just a random investor is actually buying this stock– when in reality, it is friends and family of Randall White influencing the stock price. While not illegal, it does not depict a true picture of the company’s worth.

We will have further articles on this. Thank you again guest writer for your time and words.

I’d like to thank Uzzies Uncensored for allowing me to write this article on their blog. Before I answer this question, let me release full-disclosure. I was an Educational Consultant for Educational Development Corp / Usborne Books & More. I continue to be a consultant. I am writing this article anonymously due to policy. As current consultants know, we are no longer able to voice concerns in any forum, for two reasons:

  1. Private/Closed Facebook pages specifically meant for consultants are so heavily monitored that any post must first be approved before any consultants can see it. That means if it is negative in any way, the post will never be approved.
  2. Any post which does not first require admin approval will eventually be deleted if the post appears negative or the comments in the post turn negative.

I found Uzzies Uncensored in the comments section of Randall White’s Earnings Call Transcript here: https://seekingalpha.com/article/4114075-educational-development-corporations-educ-ceo-randall-white-q2-2018-results-earnings-call).

I decided that it is important for me to come forward as a warning to shareholders, current Consultants, and those who might be considering joining Usborne Books and More on the information that the CEO of Educational Development Corp, Randall White, may not be releasing. These are my own words that I am backing them up with fact. If there is anything that appears incorrect, I welcome feedback. With that said, let us take a look at the the piece written on Seeking Alpha on October 19, 2017 entitled, “An Education in Making Money – Educational Development Corp. Stock Set to Soar” by Monocle Accounting Research (https://seekingalpha.com/article/4114713-education-making-money-educational-development-corp-stock-set-soar).

It is important to note that Monocle Accounting Research owns stock in Educational Development Corp (NASDAQ: EDUC) and will profit if the price of the stock increases as predicted in his article. Monocle Accounting Research is receiving compensation from Seeking Alpha for his PRO article ($35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500). I, however, am not receiving any compensation. I do not own any stock in Educational Development Corp and Uzzies Uncensored is not paying me to write this article on their blog.

As done in a few recent articles on Uzzies Uncensored, I am going to quote the Seeking Alpha article and add my comments.

“MLMs include fairly well-regarded firms such as Avon (AVP), Primerica (PRI), and Tupperware (TUP). However, this business model has also attracted companies that have engaged in some questionable business practices that have opened them up to criticism. For instance, hedge fund titan Bill Ackman has had a well-publicized multi-year crusade against Herbalife (HLF) wherein Ackman has accused Herbalife of being a “criminal enterprise” and pyramid scheme. As a result, many investors have become increasingly wary of any direct selling company that employs a multi-level compensation structure for its commissioned sales reps.”

Readers should review the Consumer Affairs website for the many complaints against “fairly well-regarded firms such as Avon (AVP), Primerica (PRI), and Tupperware (TUP). To Make it easier, I’ve provided the links:

Avon: https://www.consumeraffairs.com/cosmetics/avon.html

Primerica: https://www.consumeraffairs.com/employment/primerica.html?page=1#sort=recent&filter=none

Tupperware: https://www.consumeraffairs.com/homeowners/anchor_hocking.html

“Second, the company stopped selling books on Amazon. EDUC’s long-time CEO (and 18% shareholder) Randall White found that his army of UBAM consultants were becoming demoralized by holding sales events only to learn their prospective customers turned around and bought the same books on Amazon at a somewhat lower price instead of from them. Mr. White chose to terminate the company’s relationship with Amazon (NASDAQ:AMZN), as well as with other big box retailers like Costco and Target. This decision, while hurting the EDUC Publishing division’s sales, dramatically increased its UBAM consultants’ morale and earnings potential.”

Although Randall White did stop selling on Amazon, it is important to note that Peter Usborne has not stopped selling his books on Amazon and to other retailers. Who is Peter Usborne? Peter Usborne is the founder and CEO of the U.K. based Usborne Books. Per an article on Business Insider, “‘We weren’t involved in the decision,’ says Usborne, who continues to do business with Amazon in the UK and elsewhere.” http://www.businessinsider.com/edc-beat-amazon-2014-8

In Randall White’s State of the Union piece written as a “Randall’s Rambling” on October 27, 2015 (http://www.imakenews.com/eletra/mod_print_view.cfm?this_id=3254938&u=ubamuscom&show_issue_date=T&issue_id=000750335&lid=b11&uid=0&langID=13), he states:

“We have thousands of new sales consultants who have limited knowledge of our history, so I thought I would try to clear up some questions that have recently arisen.

Educational Development Corporation entered into a contract with Usborne Publishing (UK) in 1978 to co-publish their titles in the United States. At that time there were approximately 60 titles in print and we acquired the rights to the retail market, bookstores, toy stores, etc. In 1988 we established the home business division, Usborne Books at Home, and later changed the name to Usborne Books & More to recognize the acquisition of Kane Miller titles. Through the years we have maintained a retail presence with the requirement that the books not be discounted, which would undermine our Home Business division. In 2012 we made a bold move to discontinue selling our titles to Amazon as they were definitely undermining the Home Business division as well as our retail trade. Since that time our Company has experienced significant growth and most recently, spectacular growth with this arrangement.

Our contract with Usborne Publishing stipulates that we sell the products through retail outlets or the rights to that market would revert to Usborne Publishing. If that would occur, they would aggressively pursue sales to every outlet possible including Amazon, Sam’s and Costco, which in my opinion would severely damage Usborne Books & More, our growth engine. I can assure you that as long as I am alive, that will not happen. I truly believe UBAM can achieve $100,000,000 in sales in the next two years and I will fight to the death to protect this division. The Amazon decision is just one of the many ways we support and protect UBAM for you and your families.

We also offer new titles on an exclusive basis before they are offered to retail stores, and we discontinue sales to any customer who significantly discounts our products in the market place.

The most recent example of our support is a promotion with Barnes & Noble during November with That’s Not My Snowman… Barnes & Noble bought a significant amount of the title that constituted its own print run. It is featured in the window of their stores and will sell during November for $4.99 retail. And to support UBAM, we added to the print run to get the same price and make it available as a UBAM special for $4.99.

This arrangement requires significant monitoring to make it work, but we feel it can and actually it does. Our Company, particularly UBAM, is experiencing explosive growth and we expect that growth to continue. I hope you bought stock – it is still not too late. We are in the final stages of acquiring a beautiful new facility that will allow unlimited future growth; installation of new, state of the art software is coming; and we added two additional staff members in customer service this week. And, I am delighted to announce Matt Cobb (yes Heather’s husband) has this week joined our warehouse management team. This is all in response to the explosive growth you are creating in Usborne Books & More; actually when the night crew reported for work on Sunday night, they were met with 9,600 orders to fill!

It is an incredible time to be a part of Usborne Books & More, and it is just going to get better.”

The above comments by Randall White should concern you and ask yourself if it makes sense to buy EDUC stock. Why? See the many reasons below:

 

  • When does the contract to co-publish titles with Usborne Publishing expire?
  • What other stipulations are in the contract with Usborne Publishing that shareholders have a right to know?
  • Why does EDUC need to achieve $100,000,000 in the next two years? Has it been reached? When was the start and end date of this sales requirement?
  • How does EDUC keep consultants from giving deep discounts? What is the check and balance system in place to ensure consultants do not significantly discount EDUC product?
  • Do you know that Randall White offered his consultants and their friends/family a money back guarantee on his stock during this time? He made an offer which is an SEC violation.
  • Do you know the “new state-of-the-art software” that Randall promised would make a world of difference to consultants actually caused so many problems, they reverted back to their antiquated software?
  • Did you notice that Randall hired another coworker’s family member opposed to finding the best candidate for the job?

Back to Monocle Accounting Research article:

“As a result of these two changes, the number of people that signed on as UBAM consultants soared and EDUC’s net revenue quadrupled from $26 million in fiscal 2014 to $107 million in fiscal 2017.”

 

  • The reason for the consultant numbers to skyrocket in 2015 was due to a mini-starter kit offered for $25 in September 2015, not because everyone wanted to join an MLM at full-price. In fact Heather Cobb told consultants in regional meetings to get on their cellphones immediately to tell everyone they knew about the amazing deal. Total manipulation.
  • In August 2016, EDUC was “disappointed to report increasing numbers of fraudulent kit applications.” How many of these consultants were falsely named in consultant count without being explained in SEC filings?
  • In June 2017, EDUC offered another mini kit to spark an increase in consultant numbers. Only this time the kit was offered at $50.
  • October 2017, EDUC is trying to lure “consultants with JOIN DATES between October 1st – 31st, 2017, qualify for a $20 Gift Code toward www.myubamboutique.com upon submission of their first party with minimum retail sales of $100.00 within their first 30 days.” Can UBAM not afford to give consultants a cash reward to show their appreciation?
  • The kit is currently offered at either $75 or $125 to become a consultant for EDUC. https://www.myubam.com/Join/NewConsultantKit

“These issues, combined with Mr. White’s unusually transparent manner of speech in public forums along with the company’s history of imperfect disclosures in SEC filings and elsewhere gave short-sellers a considerable amount of material to shoot at earlier this year. Various unflattering (and, in our opinion, largely inaccurate) articles about the company and Mr. White therefore popped up in quick succession on SeekingAlpha.com which served to further depress the company’s stock price.”

I have read all of the articles on Seeking Alpha related to EDUC. I’d like to know exactly which articles were inaccurate. But as the author states, this is just his opinion.

“After EDUC grew its consultant count and revenues tremendously the last few years, both numbers have declined a little bit over the past few quarters, as EDUC’s software and shipping issues that it experienced last fall created frustration among many UBAM consultants. However, as can be seen, it appears that EDUC is back to growing its UBAM consultant count meaningfully, as the average number of active consultants in EDUC’s fiscal third quarter was up 16% compared to the second quarter.”

Shipping issues are not part of the past. Current shipping dates are noted below:

 

Current Date Estimated # of Orders to Ship Order Date Range
Oct 24 9,700 Oct 10 – 24
Oct 23 9,400 Oct 9 – 23
Oct 20 9,500 Oct 9 – 20
Oct 17 5,400 Sept 30 – Oct 17
Oct 16 4,500 Sept 28 – Oct 16
Oct 13 5,600 Sept 28 – Oct 13
Oct 10 7,500 Sept 28 – Oct 10
Oct 9 7,960 Sept 26 – Oct 9
Oct 8 6,900 Sept 25 – Oct 8
Oct 4 6,600 Sept 25 – Oct 3
Oct 3 7,600 Sept 23 – Oct 1
Oct 2 7,400 Sept 22 – 29
Sept 29 6,700 Sept 20 – 28
Sept 20 – 28 N/A No shipping updates from Home Office
Sept 19 7,000 Sept 10 – 19
Sept 18 6,500 Sept 10 – 18
Sept 17 6,200 Sept 6 – 15

As you can see from the above chart, orders are not shipping out same day. In some cases, there is a two week lag time between when the order was placed to when it actually shipped. Given Monocle Accounting Research’s statement that “Mr. White’s unusually transparent manner of speech in public forums along with the company’s history of imperfect disclosures in SEC filings and elsewhere,” one has to ask if these numbers are even true numbers. It is my prediction that EDUC will have another holiday shipping disaster as it had last season.

EDUC is also still having IT issues. They decided to hold their first sale since Black Friday of 2015 on September 28, 2017. It actually took consultants hours to place orders. To make matters worse, some consultants received Book Bucks (store credit) for books that went out-of-print. Heather Cobb never sent out an update to correct her below statement. Instead, directors were left to explain what happens to those consultants who did receive a Book Buck instead of their actual order. I believe this Fall Frenzy sale all started due to amendments with EDUC’s lender, MidFirst Bank, and what actually counts as inventory. Let’s look at the communication given from Home Office during this disaster:

 

Date Subject Comment
9/28/17 Fall Frenzy Wow, What a Fall Frenzy! Our IT team is working on the site issues! Thanks for your patience! – Heather Cobb
9/28/17 Fall Frenzy Sale – Site – Urgent The Fall Frenzy Sale is upon us! We are aware of site challenges created with the traffic. Until further notice, please work with your teams to take orders from the UBAM flippable catalogs! IT continues to work on the site, and until it is fully functional, we appreciate your patience and flexibility. http://bit.ly/2ttZWg7 – Tina Beal
9/29/17 Information about the Fall Sale Many of you have asked \”What happened last night?\” and we have worked with IT to provide you as clear an answer as we possibly can (without getting too completely technical). The launch of the Fall Frenzy Sale last night caused us to experience a ‘choke point\’ due to a combination of issues. Was it site traffic that caused it? No. And yes. We can assure you that traffic alone was not an issue. A flood of site traffic in a short amount of time (seconds and minutes) paired with an additional isolated problem, caused the issue. For those familiar with IT, you may already be well aware that once problems have been identified, they are difficult to correct with continued site traffic. Our IT team worked late into the night to correct the problem, and around 11pm CT was pleased to see the same volume of traffic as the initial sale launch time yet with much-increased speed. They are continuing to work today to ensure that this is not a lingering issue. Again, we can\’t thank you enough for your patience and flexibility (and even your excitement!!). An additional note: HEADS UP: When an item has sold out, it will drop out of the cart and return you to the home page. There are still over 100 titles available in the sale! – Heather Cobb

 

“Not content to take the company’s word for it, we decided to try to determine for ourselves how EDUC’s consultant numbers have been progressing. EDUC maintains a database of UBAM consultants, where one can search consultants by last name.”

This consultant database (https://www.usbornebooksandmore.com/Home/FindConsultant.aspx) is not accurate. Internal communication from directors state that the consultant database has not been updated in quite some time. In fact, there were many consultants who were inactive, yet it took a minimum of three months past when they became “inactive” before they were removed from EDUC’s online database of consultants. This is not an accurate way to determine actual headcount. In fact, I think it’s fair to say that I don’t even think EDUC knows how many current and active consultants they actually have. Since it takes 6 months of zero orders and/or payments for a consultant to be considered inactive, that is quite a long time to have a consultant sit in a database as active. EDUC does not have a formal way to allow a consultant to terminate employment as I found out when a consultant wanted to become inactive before the six month period.

“We believe that one year from now, when it has become apparent to other investors that EDUC is on its way to achieving this level of earnings, investors will be willing to pay at least 16 times forward earnings per share of $2.34, or $37.50 per share. This of course assumes no change to the corporate tax rate – should the current administration be successful with its tax reform objectives, then EDUC’s earnings power will be considerably higher and would command an even higher stock price.”

In October 2016, someone by the name of “addessiap”) made an outlandish comment on Stocktwits.com (https://stocktwits.com/home#people-and-stocks:441172) stating that EDUC stock would move to $20/share. It is one year later and that prediction was completely false. In my view, I believe this author is trying to manipulate the stock. I just don’t believe it will happen.

 

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3 thoughts on “Should I Buy Educational Development Corp Stock?

  1. Janet M. McKellan says:

    I totally get what you’re saying. I bought shares of this company at an average price of $19.45. I am FURIOUS! The stock has been down since the moment I bought it. It’s now at $19.15 – almost TWO PERCENT below what I paid. Is there a regulatory authority that deals with this kind of nonsense?

    Like

    • uzziesuncensored says:

      Thank you reader for your comments. We believe this write up is based on 100% fact, not biased opinions from Randall White himself or his consultants, most who do not understand the markets, or friends has has writing articles and commenting on financial boards such as Seeking Alpha and Stock Twits. One friend of his has been predicting a price increase of $34 for over a year now. Last week, they posted a very skewed, not accurate articled noting the stock is undervalued and now they price the stock at $60. Time will tell, but when a CE0 wastes his days on various message boards and Face Book telling the naive to buy shares, it’s not very ethical. His numbers have never added up to unbiased opinions. There is no doubt this company is still in the weeds, mainly after all debt is paid, there is little to no cash to be had (think of living pay check to pay check). That is the #1 reason NOT to buy. Randall said himself, just because there an increase in sales does not mean there is any money left over. I hope you will share with others our piece about the stock.

      Like

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