It is quite interesting that the posts here seem to parallel another company that I once followed- RADA (Radica Games). Radica had begun an amazing turn around in early 1996, going from less than a $1 a share to over $20 a share in about two years. Their claim to fame was new management and a block buster new toy, Bass Fishin. Radica began to make money hand over fist. Unlike GUMM, Radica's rise in stock price was matched with quarter after quarter of increasing earnings. The future looked bright for this company and they were announcing the release of new toys all the time. They had no debt and a boat load of cash. The longs on the RADA thread issued wild eyed projections of anywhere from $40-$60 a share within two years for this stock. Suddenly, short interest began to rise and Radica's stock price began to decline. One market maker in particular, FAHN, ruthlessly shorted this stock in spite of it's seemingly good earnings and future prospects. The longs couldn't understand why anyone would short such a financially sound company that had new products coming to market all the time! Surely, the great success of Bass Fishin' wasn't a stroke of luck and the future release of new toys would pick up the slack once Bass Fishin' sales slacked off. The Street, unfortunately, did not agree. They still saw Radica as a one hit wonder and predicted that earnings would fall off as Bass Fishin' ran it's course. They kept shorting the stock. Soon, the longs on the Radica thread began screaming about short conspiracies and fabricating rumors about possible takeovers by one of the big toy makers like HAS or MAT. Radica management responded with hyped up press releases and a feeble attempt to float the stock price by buying back their own stock. All the while, insiders were selling. The CFO even posted on the Radica thread occasionally. He claimed that the insider selling meant nothing because the sellers merely "needed the money". All the while, the stock price continued to decay. The hard core longs declared that it was a "buying opportunity" and it didn't matter if the price went down because they were "in it for the long haul". However, one by one, the stoic longs that lead the cheers through most of this saga gave up and sold off their long positions as quarter by quarter Radica's earnings slipped, just as the Street had predicted. Today, nobody posts on the Radica thread anymore and the stock sells for around $7.
The moral of this story is that when a stock gets heavily shorted like GUMM and insiders are selling, you better pay attention. Unless you plan on holding this stock for a LOOONNNGGGG time, you are going to find yourself SOL. Radica had it all over GUMM from a fundamental standpoint, yet they still fell like a house of cards and have yet to come back. To believe that GUMM is going anywhere anytime soon is a complete fantasy. Believe me. |
