mercredi 7 décembre 2016

Excitation then dilution

On monday, a lot of people got excited about an article in the Globe and Mail about Knight Therapeutics.
Jonathan Goodman, the CEO, said that he intented to acquire some assets from Valeant or Endo (or even Concordia International, if we speculate a bit) in a period where these companies are struggling with heavy debt and bad press (resulting in a pretty bad performance on the stock market).
I believe that Knight is in a very nice position right now regarding the healthcare sector. If Goodman executes well (i.e. doesn’t burn money on some crappy asset), GUD could jump like crazy in the incoming weeks/months. But at this moment, nothing has been officially done.
Anyway, many people got excited. So the shares went up to about 11$. I sold all my shares.
And then, the next day, we learned that Knight was planning to issue some new shares for 10$ to raise something between 75 and 87 million dollars. I bought back all my shares for 10% less.
There's been manipulation by the media. Well, the media didn't know, but they manipulated us after being manipulated by Goodman. Only 24 hours after excitation, there’s been dilution.
I dislike dilution because it reduces the value of our shares. But I dislike dilution even more because it’s often related to that kind of trick. Pump the price of the shares, then launch the operation.
Well, this time, I THINK it’s different. I really believe that Knight is going to deploy the huge amount of money they have. 

If they don't, they're crazy. They have plenty of occasions NOW.

5 commentaires:

  1. Knight Therapeutics is a fascinating stock.

    $1.3 billion in market cap (about half of it in cash)

    revenue is a staggering $4.5 million?
    Return on equity: a monsterous 2% ?

    This sounds like trading a dollar for fifty cents. Maybe Goodman will invest that fifty cents so well that you will get more than your buck back some day.

    It is not every day you have the opportunity to buy a stock with a 300 to 1 price to sales ratio. :-)

  2. I don't agree here.... If Goodman wanted to 'manipulate the markets', he would have taken advantage of the "excitement" to price his equity offerring close to $11. The fact the "dilution" was priced at $10 and he was OK with the stock tumbling down back to equity offerring price proves to me the exact opposite!!

    As for you... good for you - you got lucky! But stock trading on short term is Gambling... What if the next day after the rumors GUD issues a press release saying they bought Valeant Canada or Paladin back from Endo, and GUD shoots up to $15, and then Goodman finances it with stock "dilution" at $15. You lose $4 and GUD "manipulates" the market by "diluting" AFTER the "excitement", not "before" as he now did in reality.

    I do look forward to him pounding the tabel now. It is time. He has made several "dilution" so far, and made many small deals but he needs to buy those distressed assets NOW as he himself said - GUD stock P/S ratio no longer at 300x!

    1. Yeah, I got lucky and I know it was gambling. I didn't plan to buy back my shares at first.

      It's not strategy, it's just luck.

  3. The mentality of Goodman is that a bear market in his sector is around the corner. He believes stock Prices will be going down. He uses his shares as currency. He sees the stock price as being high and he wants more dilution to raise more cash. I bet if the stock price makes it to $15 shortly, there will be more dilution. If the stock market goes crazy and this stock is at $20 (with no news or acquisitions) he will go nuts with dilution. He wants to raise cash with dilution when the market is over-valued. then when there's a correction and screaming bargains, he will have the biggest mountain of cash to take advantage of the bargains.
    Some people do not mind dilution if the dilution is happening at a much higher price than the price they paid to buy the stock.
    I'm starting to think that giving this Goodman guy a dollar and getting back 50 cents may not be a bad idea if he can compound money at a very high rate for many years (something he has accomplished already).

  4. I think the bear market is already there for many pharma stocks.