Shorting stocks: Broken stocks - Analysis Message Board

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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis

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To: Q. who started this subject	3/19/2001 1:24:52 PM
From: tradermike_1999	Read Replies (1) of 2506

My favorite shorts right now are companies that do not rally when the Nasdaq does and want to fall no matter what. The Adolor Corporation(ADLR) fits this criteria. It is an IPO from last November. As far as the chart goes the stock has support at 17 and has been trading in a range between 23 and 17. It is a short right now because it is going to break 17 in a few days. You can then put a stop above 18 and move it down as the stock falls. The stock should fall to the 10-14 range. On balance volume and money indicators are trending down and the stock price will eventually follow. Looking at the fundamentals though this stock looks like a long term short which should eventually trade below $5.00 and the reality is that it should be a penny stock. It is a development stage company that is trying to create several pharmaceutical products to treat the side effects of pain treatments. Almost all of its products are in Stage I of development and are years from being commercialized - if ever. Last year the company had $31,000 in revenues which came from grants. Net loss totalled $65.6 million last year, up from $9.2 million. The company has never sold a product and only has enough money to continue through the fourth quarter of 2002. It will then have to make a secondary offering or take on a substantial loan. The company has several competitors who are trying to develop similar products and these are companies which are fully integrated with research, production, and marketing departments. The company has an EPS for last year of -$40.46 and a market cap of $466,500,000. That is a big market cap for a company with no sales and large losses. The company sold 6 million shares in its November IPO. There are 26.8 million shares outstanding and on May 12th 16 million shares will be released from lockup and can be sold. Merrill Lynch was the lead underwriter so it will be interesting to see if they appear as sellers after the lockup date. Since the stock only trades around 53,000 shares a day any selling from the lockup will dramatically dilute the stock and cause it to fall.

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