Earlier this week, I sold my entire stake in FTSE 250 retailer WH Smith (LSE:SMWH). The stock jumped 11% on Monday (19 January) but I took that as my cue to head for the exit.
A new leader might be about to set the company on a more promising path. But my investment thesis has fundamentally changed and I now think there are better opportunities elsewhere at the moment.
What went wrong?
I bought WH Smith shares because I thought they were cheaper than they looked. Specifically, I had the view that the stock market was underestimating the value of its travel business.
With £189m in annual trading profits and sales growing at 10%, I thought a market value of £1.4bn was a bargain. But not everything was quite what it seemed.
Unfortunately, the company wasn’t as profitable as it looked. An accounting irregularity meant it had significantly overstated the profits in its North American business at £54m, rather than £34m.
By the time the investigation concluded, the trading profits in this part of the firm for 2025 came in at just £15m. And that fundamentally changed the investment equation from my perspective.
The stock crashed when news of the accounting issue emerged and fell further as the investigation revealed further details. That’s given me a major problem in trying to figure out what to do.
Fortunately though, I didn’t panic and sell when the price was even lower. But with the stock pushing higher at the start of the week, I decided this was my chance to sell and cut my losses.
A new hope?
The reason the stock jumped suddenly is the company’s made an announcement about its new leadership. Leo Quinn’s going to take over the role of Executive Chairman in April.
Investors clearly think the appointment’s a good one and it’s easy to see why. Quinn has a strong record of turning around struggling businesses, including Balfour Beatty and QinetiQ.
The appointment’s set up in a way that means there’s a lot at stake for the new chief personally. A significant amount of Quinn’s compensation is based on doubling the share price within five years.
The plan involves shifting the firm to focus on travel retail and getting the North American division back on track. Strengthening internal controls is also a priority after the recent issues.
In addition to a 1,887,519 share award, Quinn has announced his intention to buy £2m in WH Smith stock using his own cash. That’s a big commitment and a strong statement of intent.
The share price pushed higher on Monday as investors got a new reason to be optimistic. But the value equation doesn’t quite stack up in the way I thought it did when I first bought the stock.
Lessons learned
So what am I learning from this? Sometimes you win and sometimes you lose as an investor and it isn’t always possible to foresee everything that might go wrong.
Building a diversified portfolio’s a good way of trying to limit the impact of this risk. But when unexpected things do happen, the right thing to do is to stay calm and reassess.
