The catastrophic collapse in DX Group shares following a profit warning last week has been blamed on heavy-handed institutional selling. However, a 70% fall in one day is exceptional for a profitable company with no apparent financial problems.

I suspect that the underlying cause of the sell-off may have been investors’ sudden fear of being trapped by a business in structural decline. Sellers were determined to get out at any price.

The result arguably leaves some value on the table at DX, but that’s a topic for another day. In this post, I’m going to look at another firm with a high StockRank which could also be in a structural decline. Could shareholders of publisher Bloomsbury one day find themselves on the sharp end of a 50% loss?

The pace of change

Microsoft founder Bill Gates made a good case for suggesting books will become obsolete and that investors shouldn’t allow themselves to be lulled into a false sense of security:

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.”

Yet it’s not black and white. Bloomsbury may still be cashing in on paper copies of the latest Harry Potter special editions, but there’s more to the firm than that.

As a commenter explained in response to Paul Scott’s comments on the firm in July, Bloomsbury also has a thriving and well-regarded professional and academic publishing service. Much of this is digital. Such activities generated a third of revenue and 42% of operating profit last year, up from 32% the previous year:

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Bloomsbury seems to be doing a reasonable job of developing electronic products and services to replace its paper editions, in both its fiction and reference divisions. The key thing, from my perspective, is that the firm recognises the need to change. Complacency is lethal, as Bill Gates understood:

“In this business, by the time you realize you’re in trouble, it’s too late to save yourself. Unless you’re running scared all the time, you’re gone.”

Is it good value?

Let’s start with the basics. Is Bloomsbury cheap? A StockRank of 96 and a ValueRank of 76 are encouraging.

Bloomsbury also qualifies for six Guru Screens. These include three value investing screens (Dreman…

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