Wham, here's a list of broken stocks I'm presently short, plus a few I'm evaluating. They all have a low RS and ugly fundamentals:
PMWI: Pagemart wireless ($6).
The paging industry is horrible, and PMWI is the worst of the lot. The industry is plagued by cut-throat competition and demands for massive capital spending on infrastructure. They all lose lots of money every single quarter. PMWI is a small player, and it is financially very weak, yet it somehow has the highest PSR of any of the paging stocks. PMWI pays junk-bond interest rates of about 15%, compared to about 10% for industry leader PAGE, so it's clear the lenders don't think much of PMWI's fundamentals either: negative cashflow, negative earnings, barely positive EBITDA, and massive debt load. Here's the big kicker on PMWI -- the thing that could put the stock under fast -- their shareholders equity and net tangible assets went negative last quarter, putting them in violation of the listing requirements of Nasdaq National Market, which you can find at nasdaq.com. I love to short the stocks of companies with horrible fundamentals and trouble with their listing status.
GRH, GRC International ($5 1/4) A beltway bandit, this firm provides outsourced office work for the Pentagon. They diworsified into some commerical high tech areas that ate tons of cash and then they had to close them. This left them with a horrible capital structure: tons of debt. The continuing operation is profitable, but very low margin and it doesn't deserve the market cap. They did a discounted convertible deal which should start flipping into common any day. You can read the S3 prospectus on Edgar.
SKYC ($9 1/8) This co. owns a satellite and offers portable phone communication to people who aren't within reach of cellular. They do this at a humongous loss. The financials are horrible, and I don't see any prospect for this to change. It's not an early stage company, the competition is tough from cellular, and they have an inherently very expensive custom product to offer.
PNDA The Panda Project ($3 3/4) I shorted this hopeless co. that has never had significant sales yet has burned up $50 M in cash trying to sell a PC and an electrical connector. They are down to their last few million cash, so they just did a discounted convertible deal, which should do ugly things to the stock price. The CEO's previous company went bankrupt. Departed executives are quoted in the press saying very negative things about the man. I shorted this at a little over $5 in January.
BPLX Bioplexus ($4 1/2) This hapless company burns lots of equity and cash trying to sell its 'self-blunting' medical needles. They were delisted from the National Market to the Small Cap Market, and at the end of the last quarter, they were just barely above the $1 M shareholders equity requirement to stay listed on the Small Cap Market. They did a discounted convertible deal, although they haven't registered the shares so that isn't a big factor for shorts yet. I shorted this one in the 6's a few weeks ago.
CARN Carrington Laboratories ($ 7 3/8) This vendor of Aloe Vera food stuffs and wound dressings for hospitals did a discounted convertible deal, which is why I went short. A few days ago, though, the co. got cold feet and decided to buy back all the convertibles in order not to kill the stock price. This cost them an effective annual interest rate of over 40%. While the stock doesn't deserve a valuation of more than $4 in my analysis, I don't recommend shorting it now, since the compelling reason for shorting it, the discounted convertible, is now gone.
Some I'm evaluating:
IGCA, the gambling co., has a discounted convertible. I'll discuss it in another post, as Harry suggests.
KKRO, the restaurant co., also has a discounted convert that will start flipping this summer or fall. The stock is below $5 now, though.
ARTT, Advanced Radio Telecom. Has problems similar to PMWI, since it is also a wireless network service provider. ARTT wants to build a nation-wide microwave network to provide 'last-mile' connections for competitive access providers (CAPs) and ISPs. They IPO'd several months back, and the stock has been falling. The SEC filings indicate a need for tons of capital over the next years, but I don't see how they can get it. They are losing tons already, and the shareholders equity should go negative sometime in early 1998 at their present loss rate. |
