1 More Reason To Avoid Kodak


Last week I showed you 4 Reasons To Avoid Kodak.

Here’s a brief recap of what I said then about avoiding the stock before we get to today’s article…

If you want to read the full Kodak article use the link above.

  1. Who Knew Kodak Was Operating Still?

I didn’t until a few days ago when President Trump announced a $765 million loan to the company to make ingredients for drugs.

When I was a kid Kodak was one of the most well-known companies in the world.

At its height it owned an estimated 80% market share of the US and 50% globally in the photography market.

But then declined to bankruptcy in 2012 as the rise of digital cameras destroyed Kodak’s legacy business of developing pictures.

I’ve been in the market for 13+ years now.  And am reading news, annual reports, financials, and other stuff related to the markets and stocks every day.

I had no idea Kodak was even still around much less a public company until a few days ago.

And this gets us to reason #2 to avoid its stock.

2. Rampant Speculation

After President Trump announced the $765 million loan to Kodak its shares skyrocketed as much as 1,900% in intraday trading.

When you consider closing prices, shares rose from $2.10 per share at the close on July 24th… Right before the announcement.  To a high closing price of $33.20 per share on Wednesday July 29th… After the announcement.

This is an increase of 1,481% based on its closing prices before and after the announcement.

Why did its shares skyrocket so much?

Because this $765 million loan was 747% higher than its market cap of $90.3 million on July 24th.

And people bought Kodak shares as fast as they could because of the opportunity for huge profits that dwarfed the size of the company.

Since July 29th, its shares are now back down to $16.40 as of this writing.

This is a fall of 50.6% in a matter of days.

Partly because of speculation and people selling shares to earn profits.

But also because of reason #3.

3. Kodak Debt Holders Are Converting Debt Into Equity

When you see rampant speculation in a stock you often see other issues crop up as well.

And Kodak is no different.

Kodak shares dropped like a rock on Monday August 3rd when its debt holders announced that they were exchanging their debt for the equivalent of 30 million shares.

Before this loan it had 43 million shares outstanding.  Now it will have approximately 73 million shares outstanding.

This dilutes shareholders by 69.8%.

Think of this like a pizza…

When Kodak issues more shares, the same size of pizza stays… But more people are around to eat it so the piece of pizza you have gets smaller and smaller the more it dilutes shares.

When a company does this it leaves the same size of the pizza but eventually, you’ll get to eat little to no pizza.

In this case, people who owned Kodak stock before August 3rd now own 69.8% less of the company all else remaining equal.

And this means they also own 69.8% less of the potential windfall from the $765 million loan.

Even though all of this is bad… Bad enough by itself that you should stay away… There’s still one more thing that’s even worse.

4. Kodak Hasn’t Produced Any Pharmaceuticals In Decades

Kodak got this $765 million loan to produce ingredients for drugs and pharmaceuticals… But there’s one huge problem.

Well one more huge problem on top of the other ones above.

It hasn’t produced any pharmaceuticals since 1993 when it sold out of its failed pharmaceuticals division at a loss of billions of dollars.

In the release announcing this $765 million loan it says, “Kodak is using the funds to “launch a pharmaceuticals division to make essential drug components in “chronic national shortage.”

Emphasis is mine above.

When you read launch above think start.

In the 27 years since 1993 Kodak hasn’t produced any pharmaceuticals or drugs.

And yet is got a $765 million loan to do so.

Could this loan lead to more success for the company in the future?

Possibly.

But there’s no way I’m investing in its stock based on hopes… Especially when you consider all 4 Reasons To Avoid Kodak together.

Stay away from Kodak and the rampant speculation going on in its shares.

***

Since then, things have only gotten worse for the once proud company.

On August 10th, 2020 Kodak shares cratered when the US International Development Finance Corp announced it was withholding its planned $765 million loan to Kodak due to “regulatory scrutiny after recent allegations of wrongdoing that raise serious concerns.”

What is this you may ask?

Allegations of insider trading by members of Kodak’s executive team.

Specifically, stock option being awarded to members of Kodaks team just 48 hours before the loan announcement.

Another allegation involves Kodak’s CEO James Continenza.  The day before the loan was announced Kodak shares traded at a staggering volume of 1.6 million and rose 25%.

Its average daily volume before this date was between 50,000 and 250,000 shares traded per day.

That same day, Kodak awarded Mr. Continenza 1.75 million stock options that allowed him to buy Kodak stock between $3.03 and $12 per share.

At one point these options alone were worth up to $50 million after the loan was announced.

And these options were granted just 24 hours before announcement of the loan.

This looks extremely suspect on all accounts.

Since these allegations and the withholding of its loan to investigate them, the stock fell from a high of $33.20 per share on July 29th, 2020 to $9.71 per share as of this writing.

This is a fall of 70.6% in 14 days.

This situation – and the chart above – perfectly illustrate why you need to avoid stocks seeing massive speculation…  Because often they turn into crash and burns and massive losses of investment capital.

Or in this case on top of the things above, also potential legal action, jail time, fines, and firings if the SEC finds out Kodak was involved in insider trading as alleged.

Stay away from Kodak and the rampant speculation to preserve your capital and your sanity.

Click the links below to see the stocks we recommend helping Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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