STEC: Insider selling is creating a wild ride
Today's Financial News - Posted August 6, 2009
STEC Inc. (NASDAQ:STEC) shareholders have been on a wild ride over the last nine months. One minute they are nearing quadruple-digit gains, the next shares are plunging.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): After an incredible nine-month run, STEC Inc. (NASDAQ:STEC) shareholders are wondering what in the world just happened.
After surging by 970% since lows late last fall, shares of the solid-state drive manufacturer have experienced the week from hell, dropping by nearly 25%.
Is it to-be-expected profit taking or is something much bigger, much more damaging at work?
To be exact, it is profit taking… to an incredible degree.
Get ready to be jealous
After seeing their wealth plummet to nauseating lows (for them, not us) and suddenly rebounding to new, record levels, two of the company’s top executives decided to cash in on their years of hard work and unload a whopping nine million shares of the $1.45 billion company.
Wouldn’t you?
Instead of unleashing the shares on the open market, the CEO and COO decided to do it as a sort of secondary offering. But instead of the proceeds going to STEC, the $279 million or so will go straight into the executives’ bank accounts.
Initially, the company said the sellers would unload just 7.5 million shares, but today, when the offering price was announced, it turns out they are taking advantage of soaring prices to unload nine million shares.
Because the offering will not dilute current shareholders, we can’t blame the decrease in share price on the additional offering. We can blame it on the $30 share price the sellers are asking to get.
Can’t be greedy
Remember, on Monday shares were trading for as high as $36. Why would anybody want to pay that much when they can get a 17% discount.
With the question of why share price went down answered, now we need to know if it will go back up.
Chances are it will. After all, the secondary offering did nothing to change the company’s underlying fundamentals other than to reduce the executive’s stake of the firm. But even with $279 million less on the line, it is unlikely the team will suddenly drive the company in the ground.
Think of this as sort of a high-risk arbitrage opportunity (oxy-moron… I know).
If shareholders were willing to pay $36 on Monday to get a share of the company’s future revenue stream, and nothing has fundamentally changed in the past few days, there is no reason not to expect share price to climb back to that level once the secondary offering dries up.
If the market maintains true to its efficiency, investors could have a shot at 20% gains. But if the last nine months have taught us anything it is this market is rarely efficient.
Next Article: Rentech: Getting ready to fuel an industry
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