In the spirit of full disclosure, I was one of the "foolish" sellers who fishhunter has been cursing over the past couple of days.
I entered the week with just under 12,500 shares at an average cost of about $4.42 per share (which I bought back in August 2016). On Wednesday and Thursday, I took advantage of the increased liquidity coming ahead of Virtra's inclusion in the Russell Microcap Index to completely exit my position at an average selling price of $5.30 per share or thereabouts. I saw the price move on the basis of the index change as not being grounded in the fundamentals of the business. Ultimately, I ended up with something like a 10% annualized return on investment with my VTSI shares. I can't say that I'll be taking any victory laps with that kind of performance.
I bought into Virtra nearly 2 years ago thinking that I had found a true gem and a long-term compounder. To me, the company seemed to have a long runway for revenue growth, some attractive competitive advantages (e.g., return fire, scenarios, favorable law enforcement word-of-mouth, etc.), a superb business model with high returns on invested capital and strong free cash flow generation, and was run by an owner operator (with meaningful skin in the game) who had an excellent track record from 2008-2016.
Over the past couple of months, I have grown increasingly dismayed by the decision-making of Virtra's leadership. Ultimately, I decided that I just did not trust that Bob would steer the ship in a sufficiently shareholder-friendly manner going forward. The list of things that gave me serious pause in descending order of importance included:
1. The prevalence of what I perceived to be fundamentally more attractive alternative stock investments
2. Bob's prioritizing buying back his and Matt Burlend's in-the-money options over buying back VTSI shares in the open market, even when VTSI shares fell to very attractive valuations
3. Bob's repeated claims of never being more confident about the business ahead of posting a very poor quarter immediately after the OTCQX uplist and ahead of posting two very poor quarters immediately after the Nasdaq uplist
4. Bob's failure to either preannounce or signal ahead-of-time weak Q4 2017 and Q1 2018 results
5. Bob's mealy-mouthed conference calls largely filled with evasive non-answers, generalities, cheerleading and other pablum
6. The narrowly-approved stock compensation package for executives and insiders
7. The slow pace of new product development and the slow traction associated with Virtra's military weapons simulator sales
8. The decision to impair the Modern Round investment a few months after committing additional funds to increase Virtra's Modern Round stake
9. Bob's poor track record in selecting I.R. reps. I didn't especially trust the guy who preceded Hayden
10. Virtra's less-than-ideal results in the Beneish M-Score for earnings manipulation in 2015, 2016 and 2017
The decision to sell was not made lightly, and it isn't lost on me that I sold my position ahead of what should be strong Q2 and Q3 results for the company. It's entirely possible that VTSI shares take off from here. If so, you can thank me for being a reverse jinx. I won't begrudge the reversal of fortune of fellow suffering VTSI shareholders. Obviously, my opinions are my own, and you should take them with a grain of salt.
I'll continue to keep tabs on the company, but likely won't reinvest until there's been a change in the board composition and/or CEO position.
P.S. I wouldn't lose too much sleep over the price action over the past couple of days. I'd be very surprised if the stock didn't rebound back to the mid-to-high 5's next week.
