Yesterday's bargain is today's millstone!
Just two days ago, I opined that at ten cents apiece
maybe SurfStitch shares were the deal of a lifetime.
Afterall, only eighteen months earlier they cost two bucks.
By my flawed rationale, five grand would buy what was worth a
hundred gees only eighteen months earlier. It was like an almost new
Bentley had suddenly appeared for sale at a giveaway
price. And, conventional, if ballsy, wisdom is to
buy in when everybody else is cashing out.
Buy, buy, buy!
Of course, the market usually knows best. If you’d followed
my course your ten cent shares would be worth seven cents. A thirty
per cent hit in two days.
And, today, after a $100 million class action was launched by
aggrieved shareholders, trading in SurfStitch shares was halted. So
even if you want to cut your losses you can’t.
From the Biz Insider:
The class action launched by lawyers Quinn Emanuel claims
SurfStitch was trading at a loss when it announced in 2015 that it
was expecting earnings to double in the 2016 year.
SurfStitch is accused of misleading and deceptive conduct
and breaching its continuous disclosure obligations
The company’s shares fell 9% yesterday to close at $0.068,
well down on the record high of $2.09 and the $1 list price in
2014.
SurfStitch on Monday announced another
profit downgrade, saying full year losses are now expected to
be about double the size since the last estimate in
February.
The company is now forecasting an underlying EBITDA
(earnings before interest, tax, depreciation and amortisation) loss
for the full year of between $10.5 million to $11.5 million, a
sharp deterioration from the $5 million to $6.5 million forecast in
February and the previous estimate of a $4 million to $5 million
loss.
(Read the rest of
that story here.)
The Australian Financial Review, meanwhile, wrote about
a seventy-eight-year-old man who was so dazzled by SurfStitch’s
promises of riches he poured his cash into the
online retailer.
A 78-year-old retiree who has seen the value of his shares
in SurfStitch Group plunge 92 per cent is the lead plaintiff
in a $100 million class action claim.
Warwick Cook and his wife Leonee bought their first 5000
shares in SurfStitch in November 2015, paying $2.12 a share,
more than double SurfStitch’s issue price less than 12 months
earlier.
The Cooks were encouraged by repeated forecasts by
SurfStitch’s co-founder and chief executive Justin Cameron that
earnings were expected to more than double in 2016, to between $15
million and $18 million.
Mr Cook bought another 5000 shares in December 2015 after
SurfStitch announced a share placement to fund the acquisition of a
surf accessories business, Surf Hardware, and upped its profit
guidance to between $18 million and $22 million.
And,
Mr Cook snapped up another 25,000 shares in May 2016 at 49¢
after SurfStitch downgraded guidance to between $2 million and $3
million, citing a reorganisation triggered by Mr Cameron’s surprise
resignation in March.
What Mr
Cook and other minority shareholders did not know was that
first-half profits and full-year guidance were underpinned by $20.3
million in income from a content deal with a Sydney-based
publisher, Kim Sundell’s Coastalcoms/Three Crowns Media
Group.
A month later, in June 2016, SurfStitch reversed the
$20.3 million transaction, leading to an $18.8 million loss.
SurfStitch shares plunged 50 per cent to 18.5¢ and continued to
lose ground, closing on Tuesday at a record low of 6.8¢.
(Read that one
here.)
The sharemarket is as fascinating as it is gruesome, don’t you
think?
