The Fool on PLCM: "PolyMedica Pandemonium The New York Stock Exchange's sudden and unexplained
decision not to list the medical products maker's stock has investors in a
tizzy. Unfortunately, even the company seems unclear as to what is going on.
The best clues involve unnamed sources discussing an apparent FBI
investigation into billing practices and the unusually high interest of short
sellers in the company's stock. Email this page
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PolyMedica
By Dave Marino-Nachison (TMF Braden)
July 23, 2001 Shareholders of medical products company PolyMedica (Nasdaq:
PLMD) had all weekend to fret over what would happen to their shares after
the company released some vague, troubling news on Friday. But when more
information became available today, and the stock quickly lost a quarter of
its market value, there was more rejoicing on Wall Street than despair.
Why's that? Because, according to Market Guide data, nearly 80% of the
company's "float" -- the total number of shares a company has on the market
-- is held short, meaning investors have borrowed and sold shares hoping they
will fall in value, allowing them to repurchase at a lower price and return
them to the lender, pocketing the difference. (For more on this practice,
check out our Fool FAQ area on the subject.)
That's an unusually high "short interest," and cautious investors might take
that as a sure sign of a stock to avoid. But the company, its financial
statements suggest, is no dog: PolyMedica's chairman and CEO pointed to
compounded annual growth in sales and earnings per share in excess of 50%
per year since fiscal 1997 in a July 9 statement.
So what's happening today? Here's the background: In the aforementioned July
9 news release, the New York Stock Exchange announced that the company would
change its listing from the Nasdaq to the NYSE, a move sometimes considered a
feather in a corporate cap. "We are proud to welcome PolyMedica Corporation
to the large group of preeminent healthcare companies on the New York Stock
Exchange," NYSE Chairman Dick Grasso said in the release.
Today was to be the day of the changeover. On Friday evening, however, the
company surprised investors by saying the NYSE "changed its decision to list
the company, but has not informed the company of its reason for doing so."
Cut to Monday morning, and investors still don't know the reasons for the
NYSE's decision. While the exchange does have specific listing standards, it
reserves the right to "deny listing or apply additional or more stringent
criteria based on any event, condition, or circumstance that makes the
listing of the company inadvisable or unwarranted in the opinion of the
exchange." That's left observers with little they can reasonably do but worry
and speculate.
Probably the best information investors have to go on at present comes from
TheStreet.com, which reported today and in March that the FBI has questioned
former employees of PolyMedica's Liberty Medical Supply unit about its
Medicare billing practices. But conflicting accounts of the status of the
alleged investigation only confuse the picture, and both the company and
government are little help.
Feds rarely comment on ongoing investigations, while PolyMedica's latest 10-K
filing mentions an "alleged [FBI] investigation" only in passing and in the
context of ongoing lawsuits reportedly charging that improper billing allowed
the company to inflate its financial results and thus its stock -- and were
filed after Barron's magazine first reported on the alleged investigation.
Where to from here? PolyMedica may have thought it could "perform" its way
out of this hole by reporting good quarterly financial results, which would
explain why it pre-announced its numbers -- fiscal Q1 (ended June 30)
revenues and earnings per share are seen at $63 million and $0.65,
respectively, both better than previous guidance -- a day earlier than
originally scheduled.
But that news has had little to no mitigating effect on the impact of the
NYSE's decision. While where a stock trades says little about the underlying
company, it is the why -- as in, "Why did the NYSE change its mind so
suddenly?" -- that troubles investors today.
Unfortunately, there's precious little information currently available that
could be used to ease those concerns, and several discussion boards for the
stock have lit up as a result. These are the days that try investors' souls. |
