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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Q. who wrote (1233)	6/23/1998 7:21:00 PM
From: Carl Worth	Respond to of 2506

John- In taking a glance at KMAG, their last profile lists a book value of $11.85 per share, or a total of about $625 million. From recent experience in researching stocks, it seems that companies in trouble often have assets on their books that are way overvalued, i.e. excess unsalable inventory, doubtful accounts, etc. In addition, KMAG is going to take a "one-time" charge in the next quarter of $135 to 185 million to "reduce asset valuations" so that would right away apparently lower the book value by between $2.50 and nearly $4.00 per share. Again, my limited experience tells me that these charges usually end up being at or even above the high end of the preannounced range. With the nearly certain impending dilution, at prices less than market, the book value would be lessened even more, in addition to the pressure of those shares coming to market at some point. The interesting thing is that they currently have 52 million shares outstanding, and yet they need to increase their authorized shares from the current level of 85 million to 150 million. This means that over 30 million shares is not sufficient to meet their needs, and that they could potentially nearly triple the number of outstanding shares if this proposal is approved. Unless they have some great new innovation coming to market in the near future, it doesn't look like there will be much good news for KMAG anytime soon. Just my two cents' worth, interested in other opinions. Carl