$600 Million Powerball: 1 Winning Ticket Sold in Fla.
17 Things You Should Always Buy NewSay it ain't so, Mark Cuban.
Yesterday the Securities and Exchange Commission (SEC) charged the billionaire with insider trading. The regulatory agency claims that Cuban sold shares of mamma.com, a Canada-based Internet search company, with the advance knowledge of a yet-to-be-disclosed private equity offering of company shares.
Cuban allegedly sold his shares under the assumption that the private offering would greatly dilute his holdings. Selling as he did prevented the loss of some $750,000, the SEC claims in its charges.
He denies the charges and vows to fight.
Mamma.com changed its name to Copernic Inc. (NASDAQ: CNIC) in 2007. As a result of the highly publicized charges against Cuban, I expected to see trading volume in CNIC increase from its current average volume of 45,000 shares.
Sure enough, volume yesterday was at more than 350,000 shares. The lemmings are so predictable. They see something on the news and they place a trade.
No matter that the reasons for the company being in the news have little to do with the business, its current state or its future potential. The company is in the news because of insider trading, period.
Now, is that a reason for a stock to go up in value?
Nope. And yet CNIC was up almost 22% yesterday. Is that amazing or what?
Let's take a closer look.
This company with less than $4 million in market cap has been struggling to find its footing for quite some time.
The business was founded in 1985, and has changed course and corporate identities more times than one can count. Its move to search seemed to coincide with the boom in Internet advertising and the hope to capitalize on the success of Google (NASDAQ: GOOG).
Of course, like most technology companies, CNIC has found profits to be elusive. In its most recent quarterly report, the company announced that it had lost $600,000 on revenue of $1.7 million during the third quarter.
The loss was about $400,000 better than the year-ago period. The good news for the company is that it has a strong balance sheet. At the end of the quarter, the company had more than $4 million in cash and cash equivalents.
At Monday's close of 28 cents per share, CNIC trades for a valuation that is less than the amount of its cash on hand.
Could it be that the attention on CNIC from the irrelevant insider trading charges be a good thing?
In the last year, shares of CNIC have fallen from a high of $2.15 per share to a low of 10 cents. That low was hit at the market lows of late October. Subsequently the company announced that it would be buying back shares using its cash on hand.
CNIC will buy up to 700,000 shares representing approximately 5% of outstanding shares. In announcing the buyback, the company's CEO noted that while capital is at a premium, the fundamentals of CNIC are strong.
The company obviously believes that the low share price in the market represents a compelling opportunity and use of highly coveted cash. I suspect they wish they bought the shares before the insider trading charges.
Don't be fooled by the sensational headlines. That said, there very well may be a compelling story here.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
11-18-2008 @ 1:36PM
Godzilla said...
Sounds very much like what Dubya did with his Harken Energy shares before he sold them to buy a stake in the Texas Rangers.
Almost the same scenario and he did get away with it.