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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis
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To: Pluvia who wrote (1601)8/5/1998 3:24:00 AM
From: Q.  Read Replies (1) of 2506
 
Steve, the convertible preferred is basically a fixed conversion price of $9. Yes, there is a provision to reduce the conversion price, but that's only if they do a subsequent equity deal with a share price of less than $9.

When looking for financially shaky companies, I like to let the financiers help me figure out how shaky they are. When they decide a co. is worthy of a convertible with a fixed conversion price, and a seat on the board to boot, that's enough to keep me from shorting based on the finances. In this market cap range, I'd rather short a stock with a lot of convertibles that flip at a 20% discount to market and an offshore fund that wants nothing to do with a seat on the board.

There may be good reasons to short this stock, such as valuation or funny accounting to name two, but I won't short it based on risk of bankruptcy ... that only happens due to running out of cash, and the type of financing they got most recently does not fit that profile.
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