Many penny stock traders like myself, never started with pennies, but some how found this beautiful, volatile, and extremely rewarding space to trade securities. When companies like Top Ships (NASDAQ: TOPS) who have a 52 week high of $151,200.00 (yeah you read that right…but post reverse split) and have falling on troubled times with a class action lawsuit and other business related troubles, share price can fall hard! Just how bad? Well, it has had a rock bottom of $0.32 a share and has been up and down recently as big board traders and penny stock investors both eat at the same table. So as I stated, I started long ago during the tech boom with trading stocks like Yahoo, Amazon, oh I loved that Amazon, Micron Technologies, Microsoft and many others until I was awoken from trading a bigger board company similar to TOPS, where I got a taste of what it was like to get a double (100% gainer) in just a day. This was awesome, why had I been settling for being happy to make 5% in a day, or 18% in a month, or 50% in a year…when I could trade these small volatile stocks and potentially earn 50%, 100% or more in a day or so. This was my crossover moment, and why I feel companies like TOPS will be healthy for the penny world. Sophisticated, savvy investors get a taste of fast money, and get hooked into the excitement of penny stocks.
- So why has Top Ships been beaten down so bad?
- Class Action Lawsuit Deadline has past on October 23rd, 2017
- Was the association with Kalani Investments Limited TOPS’ demise?
- Reverse Split
- Company Does Have a Debt Issue
Lawsuit Deadline Passes
Lundin Law PC had announced they were the lead firm in a securities class action lawsuit against Top Ships Inc and had been calling all current and former investors that had lost money in the company to be apart of the suit. The firm is going after the company for possible violations of federal security laws from January 17, 2017 through August 22, 2017. One needed to have responded to this complaint by October 23, 2017 to be apart of the lead plaintiff motion. For those that missed the deadline, and were a shareholder who lost money during the mentioned time frame, you can still reach out to Brian Lundin, Esq of Lundin Law PC at 1-888-713-1033 or email him at [email protected].
Kalani Investments Limited
The Complaint alleges that, throughout the Class Period, CEO Evangelos J. Pistiolis caused the Company to engage in a series of manipulative share issuance and sales transactions with Kalani Investments Limited (“Kalani”) through which Top Ships would sell its common shares and securities convertible into common shares to Kalani at a significant discount to market price and file registration statements so that Kalani could resell these shares into the market. When Kalani’s sales of Top Ships stock caused its share price to decline, the Company would reverse split the stock, causing a certain number of outstanding shares to be merged into a single share, and thereby raise its stock price. Then, the Company would again sell securities to Kalani, and the same pattern of transactions would ensue. While Top Ships was engaging in these transactions, the Company failed to disclose the true purpose of the transactions and related stock issuances and reverses – to finance related-party transactions and acquisitions that primarily benefited Mr. Pistiolis and his related companies, and otherwise funnel money to Company insiders. By August 2017, Top Ships, through Kalani, issued and sold into the market tens of millions of shares of its common stock, vastly diluting the Company’s existing shareholders. While Top Ships used the proceeds from these offerings to further enrich Mr. Pistiolis and his affiliates through various related-party transactions, the value of the Company’s common stock has fallen by more than 99%, which caused investors harm.
TOPS’ Financial Health (great info from a yahoo article)
Top Ships Inc is a small-cap stock with a market capitalization of USD $5.41M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know.
1… Does TOPS generate an acceptable amount of cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. Last year, TOPS’s operating cash flow was 0.03x its current debt. This is concerning as its incoming cash can pay off less than a tenth of what the company must return in the near term.
2… Can TOPS meet its short-term obligations with the cash in hand?
What about its commitments to other stakeholders such as payments to suppliers and employees? In times of adverse events, TOPS may need to liquidate its short-term assets to pay these immediate obligations. We test for TOPS’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that TOPS does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.
3… Does TOPS face the risk of succumbing to its debt-load?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of TOPS, the debt-to-equity ratio is over 100%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, as liquidity may dry up, making it hard to operate. While debt-to-equity ratio has several factors at play, an easier way to check whether TOPS’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings at least three times its interest payments is considered financially sound. TOPS’s profits only covers interest 0.35 times, which is deemed as inadequate. Debtors may be less inclined to loan the company more money, giving TOPS less headroom for growth through debt.
Investment Conclusion
Almost as if investors seek thinly traded stocks simply for their volatility, or ones that have been grossly over sold, or securities in bankruptcy (have Q at the end of it ticker) aka SOUPQ. There is a dream of re-emergence, getting back on their feet, rise from the dead, or whatever, but it certainly appears investors are attracted to momentum, volume and volatility. They seek action and opportunity, and after the dust storm settles down, whether it be a few a days or a few hours… they hope to get in and out making money. Unfortunately, investors whom lack the experience in trading and get caught in the hype sometimes get stuck holding the bag. At the end of the day, many of these companies are where they are because of poor management, debt or are on the verge of being just a shell. Does this mean there is no chance the company will put out positive news soon? No, but the odds are slim and by no means in one’s favor. TOPS I anticipate will continue to be manipulated up and down until further information paints a better picture, giving clarity to their near and distant future.
Disclosure: PSInvestor has not been compensated for this article nor does it hold a position in the company at this time.