Is Rosetta Stone Inc (RST) A Value Trap?

The decision to name John Hass as permanent CEO (and drop two board members with no intention to replace them) signals, in our minds, the company’s trajectory toward monetization. There are far more qualified digital education CEOs than John Hass available in the marketplace who could have easily been attracted to join Rosetta Stone. In fact, this would have been the most logical decision if the company was going to pursue being a long-term going-concern. On the other hand, John Hass is a perfect person to best position the company strategically. Since he was a longtime Goldman investment banker previously, he likely knows exactly who the buyers are and what they want. We also are encouraged by John’s commitment to see this investment through to a successful end. We are regularly contacted by institutional buyers wanting to buy our stock and/or private investors wanting to make a direct investment into Lexia.”

As you can see Jim Roumell is probably the most bullish fund manager on RST. However, he was bullish a year ago when I talked to him and the stock was trading above $10 at the time. I believe the company is now more determined to turn things around after it lost a third of its value since February 2015. The downside seems to be limited and this attracted the attention of quant hedge fund Renaissance Technologies which owned 7.5% of Rosetta Stone’s outstanding shares.  Another value investor, Ariel Investments, owns the biggest stake (19% of outstanding shares) in RST. Overall, hedge funds and institutional investors tracked by Insider Monkey own 50% of RST’s outstanding shares. This isn’t a slam dunk investment but I believe there is a 55-60% chance that RST will outperform the market in the next 12 months.

Ownership Summary Table

Name Sole Voting Power Shared Voting Power Sole Dispositive Power Shared Dispositive Power Aggregate Amount Owned Power Percent of Class
John H. Lewis 135,472 1,937,103 135,472 1,937,103 2,072,575 9.5%
Osmium Partners 0 1,937,103 0 1,937,103 1,937,103 8.9%
Osmium Capital 0 527,945 0 527,945 527,945 2.4%
Osmium Capital II 0 294,444 0 294,444 294,444 1.4%
Osmium Spartan 0 200,641 0 200,641 200,641 0.9%
Osmium Diamond 0 252,628 0 252,628 252,628 1.2%
Osmium Special Opportunity Fund 0 661,445 0 661,445 661,445 3.0%
John H Lewis
John H Lewis
Osmium Partners

Page 1 of 11 – SEC Filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 13G

Under the Securities Exchange Act of 1934

(Amendment No.     )*

 

 

Rosetta Stone
Inc.

(Name of Issuer)

Common Stock, $.00005 par value

(Title of Class of Securities)

777780107

(CUSIP Number)

March 28, 2016

(Date of Event Which Requires Filing of this Statement)

 

 

Check the
appropriate box to designate the rule pursuant to which this Schedule is filed:

¨ Rule
13d-1(b)

x Rule 13d-1(c)

¨ Rule 13d-1(d)

* The remainder of this cover page shall be filled out for a reporting persons initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information
which would alter the disclosures provided in a prior cover page.

The information required in the remainder of this cover
page shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934 (Act) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions
of the Act (however, see the Notes).

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