A broken stock is defined as having ugly financial statements plus a very low RS (relative price strength). The co. is often struggling to stay afloat. Fundamentals typically include negative cashflow and earnings, plus low levels of working capital or shareholders equity. A small market cap < $150 M is of greatest interest, as it places the troubled co. at risk of failing due to an inability to raise equity. These stocks usually have prices <$15.
Broken stocks often have one of these characteristics:
* liquidity problems
* obsolete products
* development stage companies where the product hasn't done well
* severe competition
* enormous capital spending requirements
* big assets of little value
* violations of bank debt covenants
* an auditor's report with the 'going concern' qualification
Broken stocks with especially serious problems include those with:
* discounted convertible financing (offshore Reg. S private placement)
* net tangible assets below the delisting threshold of the exchange.
Stocks discussed in this thread should be analyzed using SEC filings sec.gov & other sources of fundamental data.
The root for this group of short selling threads is:
Subject 15249 |
