It would appear as though the real argument here is whether the macro picture improves or deteriorates from here. I don't see how it can get better. The real problem is with debt. We have, as a nation, plunged ourselves headlong into a sea of debt to bouy what economic activity we have seen thus far. This debt is an anchor that will stop any recovery. Look to Japan to see what can happen when asset bubbles (Nikkei in 1990 and real estate in 1992) are deflated. It�s even worse here in that our savings rate is much lower. I believe the next shoe to drop will be the real estate market. When that happens, people will feel poor and trapped in their up-side down homes and as a result they will hunker down and stop spending. The Nikkei rallied big in 1993, 3 years into their bear market. We were doing the same in our third year. The Fed is only stalling the inevitable and exacerbating the problem by reflating. Wall Street is selling us a bill of goods where any recovery is concerned. Insiders are selling this market as fast as they can. They sold 44 shares for every 1 they bought. If that doesn't tell us something, nothing will.
The market maker is basically stuck taking the other end of the trade, which he normally will then hedge by buying or selling stock as appropriate.
If a fund is hedging a 100,000 share position by buying protective puts, the market maker in the option would theoretically write the puts and then at some point short the stock to hedge a large drop in the stock.
On the other hand if the customer is writing the puts because he thinks the stock will not drop below 22.5, then the market maker is long the puts and could buy shares to hedge the position (or do nothing since his loss is limited to the price of the put).
I was stopped out this AM at $23.50. I'm happy with that ... made a tidy profit in just a few months.
Personally, I believe that MLHR's prospects are looking up. But, I also believe that this optimism is already priced into the stock. Thus, I don't think I'll venture back into MLHR again soon unless the risk/reward situation changes dramatically.
This situation is, I believe, with my stated long-term sentiment of "hold". But, under the circumstances today, I will change my sentiment to "sell".
1) Due to pricing pressures, I don't see ANY way revenue could increase by 25%. In fact, I think it's more likely that UNIT VOLUME would have to increase 25% just to keep revenue STABLE, and I don't think THAT will happen, either. However, as you wrote, only time will tell on this one.
2) I don't think you could keep SG&A "stable" on a 25% revenue increase, as I'm sure MLHR's salesforce compensation is heavily commission-based. I think you'd at LEAST have to add, say, $10 million to this figure.
3) You left out the interest charges. Say, $16 million.
4) HLHR's tax rate is about 33%.
Thus, even with your (impossible, in my opinion) scenario of a 25% revenue increase, the company would probably net $97 million, which would be $1.33/share. And, as I said, I think even that would be impossible.