Psycho,
You've made a great call given that they announced that they are finally getting serious about doing something to get on the Amex. I kind of like the idea of a convertible preferred stock deal, but I believe something like that is premature at this point. They need to get some more drill bits turning to the right and ideally put out one more blowout quarter, showing steady production levels, before trying to go back into the capital markets.
Meantime, I believe we will get a nice little pop in the stock from the obvious upgrade in their bond rating that should be coming out within the next month. They now have about 3:1 EBITDA/Interest coverage and that is almost investment grade action!
Only downer from the call is that they will not get any more wells spudded for another 3 weeks. This is particularly frustrating given that natgas prices are at an all-time high. But it may not be all that bad a move for this company to basically sit out the 2nd quarter and just collect their massive production checks and pay down some of that bank line. If you don't pay down debt when commodity prices are at the current prices, when will you ever pay it down?
Now that you have an initial position in this turkey you may want to cool your jets for a week or two and see if our friendly market maker goes on another shorting rampage at the end of the month, in which case you will likely get all the stock you want at prices significantly lower than the present $.77. Of course, if the news of the bond rating increase comes out at the same time, my suggested strategy may backfire because the marketmaker would probably not short into that headwind.
I'm feeling comfortable enough of the long-term prospects for this company to now raise my long-term rating to "Strong Buy". Keeping the short-term rating at "Buy" though, due to the lack of current drilling action.
Without imminent drilling action, anyone buying or holding this stock at this point should be fully prepared to hang in until at least 8/15, which is when 2Q numbers are due. Until that time there will be nothing definitive to keep the stock price up. If you do not want to hold that long then I would strongly suggest dumping your position when the bond rating gets increased.
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