Here’s why Dick Smith has no sympathy for Dick Smith Holdings Ltd shareholders

Credit: hnnbz

On 27 November 2015, the share price of Dick Smith Holdings Ltd (ASX: DSH) shed more than half its value. The shares plunged as much as 70% from 66 cents to 20 cents before ending the day 58% lower at 28 cents.

Source: ASX website; 6-month share price chart

Source: ASX website; 6-month share price chart

It was a horrendous day for shareholders, but it seems they’re unlikely to get any sympathy from the business’ founder, Dick Smith himself.

After founding the business, Dick Smith sold his company to Woolworths Limited (ASX: WOW) in the early 1980s. Following a period of shocking underperformance however, Woolworths offloaded the specialty electrical retailer to private equity firm Anchorage Capital Partners in 2012 for just $94 million.

15 months passed, and Anchorage sold the business back to the public for more than $500 million at $2.20 per share.

In an interview with The Australian Financial Review, Dick Smith appeared not at all surprised with the severe collapse in the company’s share price. He said:

You don’t need to be very bright to realise that a company worth $90 million one moment is unlikely to be worth $500 million 12 months later just because it had a change of ownership.” He added that: “It was pretty obvious to me that anyone buying those shares would be taking quite a risk.”

In a recent article from Forager Funds, Dick Smith was described as being the ‘Greatest Private Equity Heist of All Time.‘ It’s pretty hard to argue with, especially considering the company maintains a market value of just $92 million today.

Although the share price has recovered since that low of 20 cents it is trading nearly 11% lower today at 32.5 cents. Despite their low price, Dick Smith’s shares are still a very risky investment prospect, and investors would be wise to consider alternatives such as JB Hi-Fi Limited (ASX: JBH) instead.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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