We often discuss which stock to buy, especially at the dip. However, not all stocks that trade there are worth buying. Some stocks are trading low for a valid reason, and one such stock is Dye & Durham (TSX:DND). This stock has lost 82% of its value since December 16, 2024, when the founder and his board resigned following shareholder Engine Capital’s request for board representation. Such a sudden move diluted investor confidence in the company.
Engine Capital took over the operations of Dye & Durham in 2025. It appointed a new CEO in June to turn around the company. The legal tech is realigning its commercial strategy to modernize products and ensure pricing reflects value delivered. The management has put a pause on acquisitions and is working towards integrating all the previous acquisitions and streamlining its offerings into three core platforms:
- general practice management,
- vertical practice applications, and
- law data, search, and file.
While all this looks and sounds good, its success depends on robust management.
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Why is Dye & Durham a stock to avoid?
A share price depends a lot on investors’ trust in the company’s future earnings potential. The company’s practice management software, Unity, is sticky as it helps legal professionals manage workflow and do due diligence with its proprietary data. While the new management is working to revive the business and monetize the Unity platform with cross-selling opportunities, shareholder troubles continue to be bothersome.
DND’s largest shareholder and co-chair of the Strategic Committee of the Board of Directors, Plantro, withdrew its proposal to acquire the company. In a press release, Plantro cited various concerns, among which was the risk of DND defaulting on its debt. DND’s management stated Platro’s statements are false, but this episode has raised concerns around DND’s debt.
There is a lack of transparency around DND’s finances. Moreover, its high leverage ratios, higher costs, and lower earnings before interest, tax, depreciation, and amortization (EBITDA) have limited its financial flexibility. Even the Strategic Committee considered options like the sale of the Company, asset sales, recapitalizations, or potential mergers to unlock shareholder value.
The next 12 months are crucial for the company as the management aims to stabilize the business in the second half of fiscal 2026 and return to growth in early fiscal 2027. Dye & Durham is a stock to avoid until some business stabilizes.
Buy this stock instead
Dye & Durham has a good software platform, but its future is clouded amidst high leverage and a shareholder tussle. Descartes Systems (TSX:DSG) also has a good platform, and its stock has dipped 30% so far this year. But unlike DND, it has strong management and a debt-free balance sheet. Moreover, its share price dip is because of the tariff war-induced trade uncertainty.
Since Descartes’s supply chain management solutions help companies execute their trade, a dip in trade volume has affected the company’s short-term outlook. The stock has hit its 52-week low amid the overall market bearishness as the US government shutdown ends.
Descartes has ample financial flexibility to sustain a period of slow growth with a cash reserve of $240.6 million. It has also cut costs to adjust expenses to the revenue slowdown and maintain its 43% Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin.
Investor takeaway
Buying the dip is an effective strategy only when the stock you are buying has the potential to sustain the crisis and recover. Thus, it is crucial to know why the stock fell and if the market overreacted to the short-term headwinds.
Dye & Durham’s stock has dipped because its fundamentals are at risk, making business sustainability a challenge. This is a long-term headwind that has diluted its growth prospects.
Descartes’ stock has dipped because of trade uncertainty, which is beyond its control. Even in the tariff war, the company is reporting revenue growth as demand for its Trade Intelligence solutions has increased. A structural shift in the global supply chain presents new growth opportunities for Descartes to tap into in the medium term.
