Investing: Buying Digital Signage Stock

Posted by on Apr 11, 2013 in DOOH, Industry

The IPO market has been all but dead lately, with the except of the boom and bust social media blitz. Reverse mergers have been a much more common version in recent vintage, but unfortunately they often occur with lesser fanfare. One notable example in the digital signage space is RMG Networks. For those looking to invest in digital signage, there are a few players on the public scene, but not enough to really have a good sanity check on things like P/E ratios, multiples and the wide array of other investment comparisons. Moreover, the industry has so many different types of business models choosing one that works most effectively, especially in the public market sphere, may take more time for maturation. Fortunate for those interested in investing in digital signage, the RMG model seems to at least be profitable, unlike other public companies in the place-based media sphere.

Thinking of buying stock in a digital signage company? 

While I’m no investment consultant, my personal feeling is to hold off. Here are a few reasons why.

If you’re in the industry, investing in another similar company is the very antithesis of true diversification. Diversification for someone in the industry would mean moving completely away from signage and even digital media. You diversify by getting other stock in business peaks and troughs are inherently uncorrelated to the one in which you work. In fact, analysts claim true diversification includes even going short on your personal industry. It may sound extreme, but it’s a good hedge. The short: don’t invest in the industry if you’re in the industry.

Many of my other reasons stem from the first, but are at least somewhat relevant. The market never “took off” as all analysts supposed. In fact, it’s seemed to have flat-lined until recent vintage. Maybe with a general recovery the industry will see the spike it needs to give the initial investors a nice return. Unfortunate for those who missed the boat, the major returns will have already occurred. Some analysts are actually predicting another bubble in bonds and real estate. If this is the case, a luxury product like digital signage will see the hit even worse.

I would also steer clear of ad-based models for the same reason. Some companies that are much more diversified away from signage, but still involved could include 3M, Sony, HP and any number of display manufacturers. The companies themselves have a more diverse set of products, but there is still too much correlation to make the risk worth it.

Further still, unless you have the time to dive into financials and do your homework, you’re just guessing in the dark. I would stick to the path of Indexed Mutual funds. They’re a much more safe and reasonable path than diving into digital signage at this juncture.

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