On Oct. 2, a share of stock in Cadmus Communications Corp. was worth $23.50. Four weeks later, after the October stock market panic, it was worth $16.50 -- a loss of almost 30 percent.
A perplexed Cadmus stockholder might be forgiven for wondering what happened to the company to make its shares fall so fast in so short a time. It's a question shareholders are asking about many other stocks -- especially those of profitable, well-managed companies with good futures.
In the case of Cadmus, the most obvious fact is that it was caught in the tidal wave of selling on Black Monday, Oct. 19, that sent prices sliding.
Thus, part of the decline of Cadmus, which trades on the Nasdaq over-the-counter market, was caused simply by the overwhelming pressure of sellers. But part of the decline also may have been caused by the way some Nasdaq traders dropped prices at panic rates when they were overwhelmed by the unprecedented volume.
Quite clearly, nothing had happened to Cadmus' business operations in those few weeks that would have occasioned a 30 percent drop in the stock price.
Indeed, the printing services company, based in Richmond, had reported continuing increases in sales and profits. It also had completed a series of acquisitions that appeared likely to help the company grow.
Cadmus was created in 1984 by the merger of two old-line printing companies, William Byrd Press Inc. of Richmond and Washburn Graphics Inc. of Charlotte, N.C.
Since then, Cadmus has been broadening its business to include graphic communications and direct marketing services. It also has been widening its market geographically. Building on its base of operations in the Southeast, it has stretched its facilities north to Baltimore and New York and south to Florida.
But when the stock market cracked and Cadmus' share price dropped, life changed for Chairman Wallace Stettinius and his company.
"One of the obvious effects is on our ability to make acquisitions," said Stettinius. Most of his recent deals, he noted, involved paying part of the costs with Cadmus stock.
For instance, if Cadmus decided it could afford to pay for an acquisition with 1,000 shares of stock and some cash, it would make a big difference whether the Cadmus shares were worth $23.50 or $16.50.
Thus, the drop in the stock price could have a major impact on Stettinius' efforts to continue to make acquisitions. Cadmus' chairman already has made five acquisitions in the last 18 months, spending about $24 million to bring in companies with about $38.5 million in sales and about $2.5 million in profits.
If Stettinius' name seems familiar, it is because the 54-year-old printing industry executive is the son of Edward R. Stettinius, secretary of state in the Roosevelt and Truman administrations.
Stettinius described his philosophy on acquisitions in his recent annual letter to shareholders.
"We continue to investigate acquisitions that extend the markets and capabilities of our existing businesses," he wrote. "Additionally, we are constantly evaluating broader opportunities to expand and diversify both printing and nonprint communications businesses.
"Our standards are high -- we do not want to become larger simply for the sake of size. However, we believe there is a meaningful opportunity for us to create a significant national business by associating with a select number of well-managed and profitable regional companies."
Stettinius said the standards he has set for making acquisitions would rule out marginal companies -- especially those that get hurt in an economic downturn.
"We're interested in profitable owner-managed businesses," he said. Those businesses, in turn, are willing to merge only if they can find "more liquid ownership." The decrease in Cadmus's stock price could make it more difficult to attract them, he said.
The market panic of Oct. 19 presented Stettinius with an even more fundamental problem -- whether the turmoil in the financial markets will accelerate the arrival of a recession and damage his business in a general sense.
The printing industry, which follows the movement of the gross national product, is likely to be hurt in a recession, Stettinius said. The greatest impact probably will be in the area of advertising and promotion printing.
The downturn in the market could create another problem for Cadmus, which is a major printer of financial reports, prospectuses and other documents that tend to be in great demand when the investment business is booming but tend to vanish when the market cools.
Stettinius said he could foresee a 20 to 40 percent cut in the demand for financial printing.
Stettinius said he has mixed emotions about the events of Oct. 19. On one hand, he said, "Our job is to make money and not worry about how others value it." Indeed, the daily work goes on at Cadmus' plants as though nothing had happened in the stock market.
"The only difference is the psychology," said Stettinius, "What's going to happen tomorrow?"
Stettinius doesn't know if a recession is coming. He is worried about it and believes it could happen but he also thinks it can be avoided if federal policy makers take the right steps. But just the thought of a recession is sufficient to stir his sense of caution. He knows Cadmus can attract the business it needs but hanging on to its normal profit margins may be tougher.
As a result, Stettinius says, "This isn't the time to be taking a high profile and big risks."
For investors, Cadmus presents a dilemma that is centered around the question of whether the stock, down 30 percent, is a bargain.
Nathalie H. Bonsal, an analyst for Lyon Research Corp. in New York, said she believes Cadmus is attractive at current price levels and "represents a long-term buying opportunity for an investor with a five-year perspective."
She added, "The fact that Cadmus is yet to become an institutional favorite -- and thus a prospect for dumping -- and is not a candidate for program-trading is a decided plus in the current climate."
Analyst Joseph L. Antrim III of Davenport & Co. in Richmond, takes a somewhat different view on the bargain question.
At $16.50 a share, Cadmus is attractive, he said. But so are a lot of other stocks that have been beaten down. "There are a lot of stocks to buy," he said. "Is Cadmus attractive relative to other stocks? Yes. But it's not a standout."
If an investor is worried about a recession, he might want to delay buying the stock, Antrim said. But if the investor likes the stock enough to go ahead, said Antrim, it should be bought for a five- to six-year time frame.
Bonsal estimates that Cadmus will earn $1.30 a share for fiscal 1988, ending next June 30, compared to 97 cents for fiscal 1987. Cadmus rang up $5.7 million in profits on almost $116 million in sales for fiscal 1987. Cadmus pays a 16-cent a share annual dividend.
Cadmus derives its sales from periodical printing and production services (45 percent); promotional printing and advertising (38 percent); financial printing (10 percent); direct marketing and information services (7 percent).
The largest segment of Cadmus' business is the printing of magazines and scientific journals such as "Anesthesia and Analgesia" and the "Journal of Virology." While the periodical business is reasonably steady, it is not a high growth business.
That, in part, explains Stettinius' efforts to expand and diversify. The question now is whether the stock market and the economy will let him continue to do so.