Interesting article on Dow Jones about today's sell-off. I agree with Mr. Stoss.
quicken.com
NEW YORK -(Dow Jones)- Shares of Ariel Corp. retreated Monday as analyst Michael Latimore cut the computer-networking company's stock to "sell" from "neutral" following last week's dizzying ascent.
Ariel's (ADSP, news, msgs) stock shed $22.50, or 61%, to settle at $14.50 on volume of 27.4 million shares. The average daily volume is about 2.1 million.
Cranbury, N.J.-based Ariel provides remote-access equipment, networking gear that links computers with other computers and networks.
The company's shares skyrocketed 200% Wednesday after the company announced that the Federal Communications Commission and other foreign regulators had certified its RS4200 remote access card set. And Friday, Ariel's shares rose an additional 244% to settle at $37.
Analysts and short-sellers attributed this leap to enthusiasm over expectations that AT&T Corp. (T, news, msgs) will hold an initial public offering for a tracking stock of its cellular holdings, and a widespread misperception that Ariel is in the wireless arena.
Latimore of John G. Kinnard & Co. said the stock is overvalued and the company needs cash. He said Ariel had about $6 million in cash reserves last quarter, but spends about $2 million a quarter.
However, not all analysts agree that Friday's surge in Ariel's stock price was the result of confusion over the nature of its business.
Anthony Stoss of EarlyBird Capital said Friday's runup instead resulted from a "tug-of-war" between short-sellers and investors who were long on the stock.
He said trading interest, rather than the misperception that Ariel is a wireless company, drove up the stock.
Stoss said of Ariel's more than nine million shares outstanding, only about two million are available for active trading, enabling traders to create huge fluctuations in the stock's price because of the small float.
Ariel officials declined to comment Monday on the stock's movement or on whether the company offers wireless technology.
Anthony Elgindy, the Pacific Equity analyst who on Friday attributed Ariel's rise to confusion over the nature of its business, is an investor and online stock commentator known for shorting stocks. However, Elgindy Friday told Dow Jones Newswires that Pacific Equity had no position in Ariel's stock.
Earlier this year The Wall Street Journal reported that Elgindy was temporarily banned from a popular stock-discussion site, Silicon Investor, for his controversial posting. He also was disciplined by the National Association of Securities Dealers for stock-trading violations in 1997. Elgindy has said the violations were inadvertent. |
