Information Arbitrage is (InfoArb) is simply one of the biggest competitive advantages investors have in their war chest to achieve out-sized portfolio returns.
“An arbitrage exists when a disconnect between stock prices and available public information on a company is noticeable, and monetarily worth pursuing. Sometimes, the mispricing of micro-caps can be substantial.” Maj Soueidan, Co-founder GeoInvesting, LLC
April 4, 2016 Stock Alert to Pay Off?
We are eager to see if our information arbitrage alert issued on April 4, 2016 will pay off. The stock named in the alert is quietly inching up. We expect fourth quarter results to be issued around mid-August, when the information we came across in SEC filings should become evident to the entire market.
We came across the company while looking for a “growth + value” stock to add to our portfolio. When we found the company its stock was trading at $5.30 with a dividend yield of around 3%. At first glance the company’s financials showed that consistent sales and net income growth had been challenged for many years. However, when taking a look at its “boring” SEC filings we came across a passage in the stock’s most recent 10Q that was NOT in any press release, inferring that sales and earnings growth is NOW in the cards. [hide]
“For the thirteen weeks ended November 27, 2015, net sales decreased 0.1% from the thirteen weeks ended November 28, 2014. For the twenty-six weeks ended November 27, 2015, net sales decreased 0.6% from the comparable period in fiscal 2015. The decrease in the year to date sales is primarily due to the loss of a third party contract that expired at the end of the prior year first quarter. We do not expect to see a continuing trend of declining sales going forward.”
[/hide]We have not been successful in securing an interview with management which adds an element of risk to our bullish stance, but while continuing our SEC filings analysis we have found some more intel, indicating that the stock will be a takeover candidate down the road. We would love to share all of our research with you, so if you decide to join our community you will be guided to the spotlight research section of our premium portal to access our DD on this stock. Just reply to the welcome email with the word “ARBITRAGE“.
Information Arbitrage Pays Dividends
The information arbitrage strategy has “paid dividends” for many investors. The trick is to know where to look for information. Technology and social networking avenues have increased the number of places where information can be found. But everyone is looking in these places. That is why old fashioned SEC filings are still one of the best places to look for nuggets of hidden information. In other words, people want easy information, although that does not always equate to the best information.
Many microcap and small cap management teams publish intel in SEC filings that they omit from press releases. Understandably, many investors just don’t have time to sift through the pages and pages of SEC filings. That is why we provide this service to our members. Let us do the heavy lifting.
We are looking for information arb opportunities every day. Used correctly, this practice can be used to identify risks or opportunities in stocks you own or are thinking about buying. For example, last week, water filtration company SEYCHELLE ENVIRONMTL (OOTC:SYEV) issued its year-end earnings press release and offered a weak outlook for its first quarter. However, before the market open, we alerted our subscribers that management omitted devastating information contained in the related 10K filing. The company lost its biggest customer (33% of revenue) due to a product recall issue.
“The likelihood of this customer continuing to purchase our product is remote. Our most significant customer in fiscal 2016 appears to have ceased business and will presumably no longer be available to purchase our products. There may be some decreases in sales to other customers in the subsequent year as well.”
The stock finished the day down ~60%. If you are a current shareholder you certainly would have wanted to know about this new risk. Ditto if you thought the drop in shares was a buying opportunity at face value.
A good amount of our info arb findings have identified bullish opportunities. For example on February 28, 2014 we came across verbiage in the filings of EVANS SUTHERLAND (OOTC:ESCC) that it was on the verge of settling its past due pension expense, which it did on April 21, 2015. The stock rose from $0.14 to hit a high $1.2 as the news filtered through the market, giving our members plenty of opportunity to lock in profits. More recently, shares of Bg Staffing (NYSE AMEX:BGSF) dumped by almost $3.00 to $13.65 in one trading session after it filed a prospectus to execute a secondary offering. After reading the fine print in the filing we let our followers know that the proceeds would be used to pay down debt which would be accretive, not dilutive, to earnings per share! Within 6 days of our alert shares reached a high of $16.66, before setting in around $15.50.
We hope that you will consider joining our service in the near future as we uncover more arbitrage scenarios.
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