Terms are great. It must be thinking hey cheap money--especially if It's not so concerned with its stock price in the short term or being pestered by shorts. Shorting here at $21-$22 doesn't make a lot of sense for converts. But at $30+ down to $14? That's real money. And all it would take is FNSR struggling a few Qs like CSCO. Then short $22 to$30 and down to $14 would make a lot of sense and $$$.
Often a stock price after these deals rockets up to the strike price. This is when they begin to hedge the converts and make money shorting the stock down over and over: rinse and repeat so to speak. I've seen this so many times. It's why convert holders lend to companies at such low interest rates: they extract their effective interest out of the stock vs. pathetic coupon interest. That's what I'm saying.
If the company does poorly, the price falls and debt holders remain hedged. It's almost like they control the price shorting it, letting it rise, shorting it, let it rise. This is how they make money in my eyes and know when the price is going which direction. I can't say in every case either as I've only seen so many of these deals. But I can say this. Once the company falls on hard times, the convert holders come in and lower the strike price. Eventually it can and often has become a terrible deal for shareholders. Dilution is most talked about, but rarely do I see converts convert.
Like you said, I think the covert deal is too good to be true. This type of debt is usually saved for troubled companies. While I don't recommend owning FNSR, I don't think it's a troubled (not yet at least). Certainly it's good for trading with its volatility. One thing I have seen is when this convertible debt is retired--not refinanced/replaced--the underlying stock does much better. Ironically, I see the price swoon before the debt is extinguished and then it rises nicely. To me, this is further evidence converts aren't good.
Splat! $1.43. $825 million+ in losses = failed business. Lest I need remind you again for the nth time...
Dow up 1.2% vs. AFLOP bright RED down -1.4%. And this pos laggard has a beta 1.7? More like -1.7.
Other fiber stocks like CLFD rebounded nicely off a nice buying dip. Heck, even FNSR is up and I was more bearish on it than AFLOP.
Ok, then, we'll do the converse and you can show me you're not lazy. I've named several examples and you just brush them off as not similar companies. I agree they're not, however I'm not arguing they're the same; I'm arguing they share a common thread in capital structure only: converts.
So, now that I know you're not lazy, name me which companies in your experience with converts are doing so well? Go a step further and show me your list of companies with converts wherein the stock price exceeded the convert strike price and convert holders actually converted. This would help prove my experience inaccurate or perhaps circumstantial.
It's not just my personal experience. There is a lot of academic research consistent with my personal experience over decades in finance, accounting, trading and investing.
"The SIRI example is irrelevant and this is a convertible deal by someone who knows how to make them work."
You never answered my question re SIRI or how all the convert deals I've ever witnessed seem to do the same thing to a stock. It's very relevant. Do some research "...ton of academic research saying that it [stock price] usually goes down. " Of course, my experience suggests first it goes up often near or over the convert price. This keeps the Vegas lights flashing.
As for today, up 1.3% as FNSR is red. Nothing definitive either way. I've lower my expectations to $21 vs. $20 for option expiry. Didn't expect this. We'll see.
As for your "seller buddies" quip, I have none. I operate alone. I know no other bear on this board in fact. Not sure there even is one.
Years ago, I once put a sell/target $.63 on AFOP at $1.90. Three days later B. Riley put a buy on it. The price dropped to $1.50 and B. Riley withdrew coverage. Stock did hit $.63 and was at risk of being delisted.
Looks like it upped its price target to $20 from $19 back Oct 26th, 2013.
Hard to follow these guys. July it had a $15.35 target and downgrade to neutral but then suddenly $19/$20 price target but no buy? Maybe someone can clarify how you have a $20 target from $15 and tell your clients you're neutral. (Meanwhile the stock shot up to $23.94 and had revs up 86% and net income up 282%). Neutral...right.
That'd be $15.35 now.
July 19, 2013 6:42 AM EDT
B. Riley downgraded Alliance Fiber Optic Products (NASDAQ: AFOP) from Buy to Neutral with a price target of $30.70.
near $21 option expiry is still my bet. Then we'll have to see where things are heading but probably not until Jan. While the bulls are hopeful and there are good reasons, I don't see the reality matching hope...at least not yet.
As I've said hope can be misleading and very dangerous.
Like I said, not time to blow the bugle yet. While my pick (long) CLFD had a nice rebound, AFOP is still sick and basically left for dead. I see other signals and corroborating evidence fiber optics and the general markets could retreat and/or suffer big drop in 2014. Despite last few days of strength, FNSR not out of the woods until the chart (and trading) indicates so.
Ironically, they probably took my recommendation straight off this board.
Insiders selling sent the best warning you can get. This wasn't just routine selling either. They where dumping right into the euphoria. CFO sold over half her shares this year if I'm not mistaken.
But don't worry, with the stock being diluted 41% since 2000, they'll hand out plenty of stock options at lower prices now to keep the dilution steady. I mean what better way is there to hold AFOP stock nearly risklessly than via stock options? You never have to exercise the options if they're out-of-the-money.
So far this year:
Insider / Value sold
Peter Chang, CEO Total $14,101,720
ANITA K Ho, CFO Total $1,304,357
DAVID HUBBARD,VP SalesMarketing Total $2,745,564
GWONG LEE YIH, Director Total $215,740
Ray Sun Rei-Kung, Director Total $157,455
James Yeh, Director Total $148,030
Grand Total $18,672,866
Back circa 2007, I downgraded AFOP to sell. A few days later, B. Reily (Wang who I think still covers AFOP) put a buy on the stock near $1.90. It fell to $1.50 and suddenly it dropped coverage. The news eventually turned negative and the stock hit my target of $.63.
Very few people understand the inner workings of AFOP. Right now it looks like a screaming buy. Yet smartly, no one will go near it. Down 40% in less than 2-months? Clearly I'm not the only one who gets it either.
No volume. Choppy trading. Same old AFLOP. Actually, this is worse than dead money. Dead money implies your investment just sits there. This POS keeps losing you money.
Eventually AFOP will be held down long enough negative news will catch up with it. I mean how do you beat last Q3 86% rev growth and 282% net income growth? All the big previous sellers were probably right...institutions like Wellingrton and even the CEO dumping 488,000 shares at the high in Sept. They and other insiders like CFO know...probably it was as good as it's ever going to get.
Firstly, how is SIRI example and trading history irrelevant? The companies aren't similar but the capital structure/converts are. In fact, I've seen this in every convert deal I've ever known. NEM. CHTR (bankrupt). ADCT (bankrupt). SUNW (acq by ORCL).
I'd watch the price goes up after the converts are issued to or slightly over the convert price and then it's blasted back down--pestered by convert holders indefinitely. Market makers know this and it seems they get in on it even naked short selling the stock themselves. That's the way it used to be. Is it still now? We'll just have to see said the blind man.
Regardless, if this hits anywhere near $30, it'd be good exit anyway for you guys. I'll be out by $24 where I'd start to lose money short and the $23.38 taken out. I thought this would fall faster and it's not. Certainly not like AFOP's collapse.
Never fails. Set the trap and take them all lower. And then takes them another notch lower. By this time, it's very hard to average out better than break-even. Say you bot $18 pull-back. Then again $15. By $14.50, it's difficult to get out let alone profit as the price never rebounds $15+. If it does, it wouldn't be for long so you better be seated with finger on the trigger.
On the other hand, I can't say it doesn't pay to hang on to sell the next pump, but in many cases that's 2 to 4 years--quite a dead money sentence when there are so many other opportunities. While AFOP might be up over 100% which is great for 3 years, it's very difficult to time and so many other ops out there in the mean time. RGR anyone? Anyway, you miss the tiny exit at the top to the day, and you suffer and risk holding for another 2-3 years or longer. Not worth it long in my opinion.
off a new low on 3x volume? gee I wonder who is selling vs. buying. We saw what KD bought and know what's in the bags. At this point looks like pump to unload. Only the big players in this cesspool know. Even I'm guessing. Whatever it is, it's all speculative noise at best. A $.05 move is 100% meaningless off a new low and $1.40 stock. It's binary at this point (99.99%) doomed to fail and .01% it somehow survives.
Same pattern. Back to fill $14.20 and probably back to fill Monday gap in $13s. I think too many burned by it so trading activity is insignificant. Either trade the big moves or don't trade it at all. This thing is dead money.
We'll see. So far, it's holding and seemingly wanting to move higher. But trading/volume sketchy in my eyes.
I remember watching SIRI squeeze shorts to $9 from $2 and then collapse to near bankruptcy around merger with XM . Converts have a way of snookering even the most seasoned traders.