I sold short today at $35.25. I can't believe I finally got my hands on some shares to short. The way I see it, I have practically zero downside risk (there is no way this stock is going much higher than $40 and certainly not through its 52 week high of $44 (I think). In simple probability terms, this stock is more likely to disappoint/underperfrom its the very lofty grwoth expectations (implied by current stock price). The price decline probabilities and range are much larger than the upside probabilities.
The IPO price was in the USD10 to USD15 price range I believe. What's cahnged since then ? Nada. And remember, investment bankers price IPOs at the max using all the valuation tools available (comps with other restaraunt cos etc.)
Ben and Jerry's comes to mind as a company that enjoyed what seems to be somewhat of a cult status by individual investors - but evn the great B&J never reached these inflated levels.
Anyone buying this stock on DBAB's advice should make a careful note of it so you may recover from them after this stock tanks. Iguess good old DBAB hasn't read about ML's recent problems.
I agree. When the stock was at $30, it was easier to short. Then "someone" flipped the switch which is easy to do if you're a mutual fund and you own a ton of shares. Add a bit of pumping by Alex Brown and up she goes. After the distribution is over, this stock will fall fast.
again a lofty, frothy stock. Their bullishness is in the price here at 36 plus today. You know it, I know it, They know it! There's NO room any disappointment. GMCR has had great news, beat the street, and from 43 to 24 in short order. Not a pretty sight when the EXIT
sign starts blinking!
Stay tuned for Thursday's news!
Good luck to all!
The smart short sellers, when they deal with a highly volatile stock such as KKD, do not put on a full position at the outset. (The dumb short sellers do, and are soon history). For example, I might put in about 25% initially and add to the position over a period of time. The problem with analyzing how high a stock such as KKD can go is that its price is detached from reality - you are not dealing with rational buyers. Since the buyers are emotionally driven, they tend to run these stocks to really absurd levels before reality reasserts itself, as it always does. You might wish to review the recent dot com mania if you disagree with this analysis. You may say, well the dot coms are not the same as this wonderful dognut company, but the investor psychology is really the same. "I'll pay any price for this stock because it is going to make me rich. I have truly found a pot of gold at the end of the rainbow. Valuations do not apply to this special company because, with its growth rate, it will fulfill this valuation." These investors always forget that maintaining 30% plus growth gets more difficult as the base numbers go up.
<<And remember, investment bankers price IPOs at the max using all the valuation tools available>>
That is your opinion, but not necesaarily the truth. I read an article in IBD a few weeks ago saying that investment bankers tend to price IPOs low so that the insiders who hold pre-IPO shares will reap a personal windfall, although the capital raised by the company is minimized.
If the shares were priced fairly, they wouldn't shoot up so dramatically (at least in last year's marekt climate).
IPOs are usually priced at whatever the largest institutional buyers who are going to purchase shares are willing to pay for it. Since they carry a lot of importance for a successful offering, they'll usually be able to pick up the shares at a discount, and make some money on the runup to fair and/or market value. Issuing companies very, very rarely get true value on their IPOs, even in this down market.