Most of us love a good turnaround story. But when it comes to Eastman Kodak (NYSE:KODK), the evidence off and on the Kodak stock price chart is warning investors not to wait around for a picture-perfect outcome to develop anytime soon. Let me explain.
Wall Street has had its share of companies emerge renewed from a path of certain self-destruction and irrelevance. Advanced Micro Devices (NASDAQ:AMD) is one top example in recent years. Under the stewardship of CEO Lisa Su, the semiconductor outfit has powered its way back into the fold with competitive products that have proven a strong shot over the bow of Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA).
The improvements at Advanced Micro Devices haven’t gone unnoticed either. In 2019, AMD stock turned in the S&P 500’s best return of all its constituents with a gain of nearly 150%. And since 2016, when shares seemed all but dead at less than $2, AMD has climbed more than 4,000%!
Additionally, Best Buy (NYSE:BBY) is another badly-beaten down company. Under strong management, though, learned to adapt and compete in a retail world increasingly at risk to online threats — most noticeably from Amazon (NASDAQ:AMZN). And amid the novel coronavirus lockdowns and a socially-distanced new normal, Overstock (NASDAQ:OSTK) has managed to make hay with sales soaring this year. But some investors wrongly see today’s environment as a Kodak kind-of-moment for Kodak’s own shareholders.
In late July — after languishing near $2 and just removed from an all-time-low of $1.50 hit during March’s broad-based Covid-19 bear market — KODK shares of rose an astonishing 1,480% to a high of $60 in less than three trading sessions. A phoenix rising from the ashes barely describes the stock’s explosive trajectory as Kodak’s valuation soared from a measly market capitalization of around $150 million to about $3 billion.
Behind the over-the-top reaction and almost as fast cratering, a still-pending lush government $765 million loan for Kodak to focus its manufacturing chemical business on the pharmaceutical market, questionable lobbying monies exchanged, picture-perfect insider trading and ultra-low stock float all conspired to usher in an easy come, easy go round-turn reaction in shares.
Some investors are still waiting and believe a successful business pivot is possible, even if a stalled government deal doesn’t ever bear fruit. Many of those stakeholders are also massively underwater. But as most of all of my colleagues at InvestorPlace agree, the only certainty in Kodak is the lack of certainty surrounding what remains, a highly-speculative bet at best.
Kodak Stock Daily Price Chart
It’s said a picture is worth a thousand words. And with the daily chart of Kodak stock, the greed, fear and hope of the past three months are eloquently illustrated, monetized and captured. Currently, shares have entered into a gap area following September’s last hurrah. My best technical guess and given Kodak stock’s track record and iffy financial circumstances, is shares will revisit $6.53 to fill the void left by a few overzealous traders. And it’s only likely to get worse from there.
My advice is not to be left holding the bag in Kodak stock. The best way to do that is simply walk away and don’t look back. But if you’re going to believe in the bulls’ version of what’s possible in KODK stock, risk capital using an intermediate-term, slightly out-of-the-money bull call spread reduces unwanted downside exposure to a situation with an unusually high risk of failure.
On the date of publication, Chris Tyler held, directly or indirectly, positions in Advanced Micro Devices (AMD) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.