Violin Memory downgraded to Neutral from Overweight at JPMorgan - JPMorgan
downgraded Violin Memory with a $5.50 price target following the company's
weaker than expected Q3 results.
SSS up nicely but this won't help the stock today
as I said before the stock is very difficult to borrow so I hardly expect much if any influence from shortsellers. The selling pressure is solely due to the millions of shares bought at much higher prices solely because of a blatant seekingalpha article which promised retail investors that the stock would reach orbit after following Q3 earnings.
Deutsche Bank downgraded Violin Memory citing poor execution and a high cash burn rate following the company's weaker than expected Q3 results and outlook. The firm lowered its price target for shares to $3.50 from $10.
frankly I don't see any reason to short the stock going into earnings - I guess investors know largely what to expect from the company given the deep financial troubles. So clearly nobody is looking for huge upside or even a profit. In fact a somewhat better than expected outlook or at least some positive commentary with regards to the resolution of the bond and overall debt issues.
even a huge miss and guide down wouldn't do much to the stock price as investors are looking less at the current business (which is insufficient anyway to support the giant debt load) rather than for an amicable solution of these debt issues going forward.
so risk / reward looks clearly better on the long side here going into earnings
that said I am not convinced that shareholders will indeed get a good deal regarding the debt issues going forward. Would still expect them to end up just like Suntech investors.
there was no analysis in the article - it was all about pump and dump - the author picked a very illiquid stock with a recent history of positive earnings surprises and put a blatant article out touting his success with two former recommendations despite very well knowing that Q3 has been a weak quarter for the company historically. I bet he sold into they giant hype and perhaps even went short the stock (if he was able to borrow shares).
watch this to open around $3.50 and to close below $3 tomorrow - analysts won't be too happy looking like dorks here after having just recently initiated coverage of the company.
this would still be an amateur mistake
clearly the stock price tomorrow morning will be lower than after hours because of analyst downgrades and class action lawsuits making the mess more visible to investors but during market hours most institutional investors that subscribed to shares during the IPO process will exit the stock putting incredible selling pressure on the shares perhaps all day and perhaps even some more days. An earnings disappointment so shortly after an IPO usually kills the stock completely.
Analysts on the call even started to think that Toshiba has refrained from their product collaboration plans and were also asking about cash burn going forward.
Without huge improvements in the cash burn rate the company will have to file for chapter 11 in Q1 2015 at the latest date.
Given all these problems its easy to see that the stock will be down 50% at least tomorrow and will drop further in the aftermath as there's simply no reason to own the shares at all at this point.
also there's an interesting management comment about ".(...)we are beginning to experience improvements in our business operations(...)" in the press release so earnings might surprise to the upside this time which would be a major event for this cash strapped perma-underperformer
while I am not sure if the common shares might have any value given the debt challenges of the company this one should experience major price appreciation tomorrow.
but be careful, clearly some smart guys knew about this financing in advance and positioned themselves accordingly - stock was already at $1.75 two days ago on very heavy volume.
especially the guys form Pacific Crest and Deutsche Bank seemed really #$%$ off. Would expect all of these analysts to downgrade the stock tomorrow. And perhaps some might even lower their rating to "sell".
Even with the stock down 30% in after hours this is still a great chance to sell or better sell short as this will be down at least 50% tomorrow morning after the angry analyst commentary has come out.
I am no chart guy but I would expect that it needs to settle significantly below the price point it traded before the article came out as the weak earnings would have been a disappointment to investors in any case. But the fall from grace might become even more pronounced as there are so many opele now trapped in the stock due to the blatant article.
analysts are clearly puzzled on the call
I would guess that it will see the $3 tomorrow - will go down more than 50%, perhaps 70%
this leaves product revenues just above $20 mln for next quarter even weaker than Q3 and simpy unbelievable