It's certainly not earnings. This company has virtually no revenues and is losing a ton of money, and is paying rack rate to acquire nearly-bankrupt, money-losing companies (when they bother to tell us what they've paid at all).
The news they keep putting out is absurd. Last week they announced that two investment banking firms had initiated "strong buys." You had to look closely to realize that the release was issued by the company not by the investment bankers. You did not have to look closely to realize that the investment bankers were total unknowns, one of them not even domestic. Even after researching them I could find only one other company either of them had EVER recommended before.
LOAX acquired a company in July that was down to its last few dollars in cash, hemorhaging cash flow, located in a geographical territory where they have no synergies, and so burdened with debt that all of its loans and credit lines had to be personally guaranteed by the owners. LOAX noted it was accretive to "earnings" (of which they have none), which only pointed out that LOAX was even LESS profitable than the acquired company. And oh yes, when they finally got around to admitting what they'd paid, it was clear why they hadn't announced the price in the first place. The stock given in trade would have been fair if the acquired company had been breakeven or even marginally unprofitable, but the real kicker is a $5 million "put" option the sellers got if the LOAX price isn't at least $15 when the stock gets registered and becomes tradable.
They haven't announced the terms of the two latest acquisitions (after the last one I can understand why), but a D&B I ran on one of them showed it with 23 employees and projections (future) of $1 million in revenue, which means they're losing a ton of money as well. Two of this company's principal's credentials (including the president's) included being "active in" (I'll take that to mean "working in" since it doesn't say principal, owner, officer, etc.) a tavern for 20 years.
So what's with the run-up? It sure isn't valuation or sector. By comparison with most any other ISP (including those that are actively delivering DSL), LOAX is overvalued by a factor of 5 to 10, depending how you calculate it. And small-cap third-tier nets have been getting killed this week. It isn't news, since the only news that's been released has been nauseatingly amateurish.
I expect we will find this to be a pump and dump. By whom, I don't know, maybe some large holder who's figured out what a POS it is. But even after the run-up, borrowable shares are very difficult to find, which rules out this having been a major short squeeze. I unboxed my short position a little early but I'll hold it to 30 or more if I have to.
Insider shares start coming on the market as soon as they register the shares issued on the first acquisition, which must be no later than early November. A ton more come on next spring when the original insiders get released from lockup (could happen earlier if Dirks let them, but I doubt he will).
This is an overvalued ISP who thinks they can own the world by offering one-stop shopping for everything from cable and DSL to local and long-distance service. Their competitors include (with this specific strategy) AT&T, Sprint, and MCI WorldCom, and (with overlapping but different strategies) AOL, MSN (which is considering offering internet access for free), VRIO, RTHM, ATHM, Bell Atlantic, and dozens of other blue-chip, and tier-1 net companies that could chew up and spit out LOAX like an ant. This stock will trade in low single digits in 6-12 months. |
