Yesterday, we locked in our gains on our short call from 10/20/2014. In our 10/20/2014 note, we stated we were establishing a short position in LAKE based on a 13D/A filing from Ansell (large competitor)showing they had sold the majority of their position in LAKE. We think the removal of this very positive catalyst could result in LAKE making its way back to $12.00 or lower. Recall, the short trade in LAKE came just 10 days after we locked in over 100% gains in our long trade.
Covered LAKE Short, Moving on to APT
While we feel shares of LAKE still have some room to the downside; we are now focusing on our APT short which we alerted on 10/27/2014. Our original note:
Call to Action: Alpha Pro Tech (APT) – We are short Alpha Pro Tech Ltd. Common Sto (AMEX:APT).
- Unless Ebola spreads past the expectation in Africa and/or unless an individual in the U.S. or Europe that has not traveled to Africa is diagnosed with Ebola, we think the Ebola hype will slowly and eventually continue to fade.
- APT recently announced Q3 2014 earnings where sales and EPS growth were essentially flat compared to the prior year period.
- Referencing APT’s Q3 2014 press release, management provided no indication that it was experiencing increased or dramatic growth in its protective apparel line due to the Ebola scare. In fact, the company mentioned it was giving away its protective apparel products to help in North Africa. Further solidifying our assumption, it appears that the small growth in APT’s business is coming from its non-protective apparel business.
- Given the facts, we think APT will retrace most of its Ebola infused gains, which would put the stock between $2.50 and $3.00
Investors who have been trading stocks related to Ebola are probably already aware of the associated risks of doing so.
Price action on Thursday, 10/24/2014, is a great example of the extreme volatility involved in these names. A few days prior, LAKE and APT were aggressively retracing their Ebola gains after they had reached highs of $29.40 to $10.73, respectively. On Thursday, LAKE and APT both broke down, hitting $12.23 and $3.69, respectively.
Towards the end of the trading day on Thursday, news surfaced of a doctor who had returned to NYC after treating Ebola patients in Africa. He admitted himself to the hospital in fear that he had contracted the virus. By the end of Thursday’s trading session, Ebola related stocks moved sharply higher and gapped up on Friday morning, when the it was reported that the doctor tested positive for Ebola. The stocks eventually traded back down when LAKE issued a press release that it completed a secondary offering private equity financing at $10 per share.