Some folks won’t be old enough to recall a time when Kodak (NYSE:KODK) was known for selling non-digital cameras. In 2020, the year of the novel coronavirus pandemic, the company is radically different, and traders think of Kodak stock as a “coronavirus stock.”
When a company has been entrenched in one business for generations and then transforms into a completely different type of company practically overnight, there’s bound to be some controversy.
In the case of Kodak, the debates have gotten pretty heated sometimes. Some traders love Kodak stock while others dislike it intensely. As an informed, level-headed investor, you don’t have to take an extreme stance.
Rather, you can weigh both sides of the issue and make a reasonable decision as to whether you’d like to own Kodak stock today. Indeed, you might even choose to take a long-term position in this deeply transformed American icon of a company.
The Rise of Kodak Stock
Until July, Kodak stock really wasn’t very newsworthy. The share price mostly stayed between $2 and $3, week after week. Every time the bulls attempted to stage a breakout, they seemed to run out of steam.
The onset of coronavirus, and the need for affordable drugs, changed all of that. A surprising and unlikely turn of events took place as Kodak pivoted to a new business model. More specifically, the company would now manufacture ingredients for generic drugs.
In the midst of the pandemic, Kodak submitted a letter of interest for a $765 million federal loan so that the company could manufacture generic-drug ingredients on a large scale. Amazingly, the Kodak stock price skyrocketed to exactly $60.
At the time, there appeared to be bipartisan support for Kodak manufacturing pharmaceutical chemicals. For instance, New York Governor Andrew Cuomo said, “Never again do we want to rely on shipments from China or elsewhere in order to get lifesaving medical supplies.”
Kodak Comes Under Scrutiny
The controversy came soon afterward, though, and so did a decline in the Kodak stock price.
Reportedly, the $765 million loan agreement was put on hold after Massachusetts Senator Elizabeth Warren raised allegations concerning “insider trading” and “unauthorized disclosure of material, nonpublic information.”
Evidently, Kodak executives had received stock options a day prior to the White House’s announcement of the proposed federal loan. The next thing you know, traders were unceremoniously dumping Kodak stock.
As a result, the Kodak share price fell to $6, and now in mid-November, the stock is trading between $6 and $7. Was such a sharp sell-off warranted, based on the allegations against Kodak’s executives?
The Big Probe
In order to verify the claims, litigators Akin Gump Strauss Hauer & Feld investigated the alleged illicit trading activity.
This was a comprehensive probe involving “numerous documents, including over 60,000 electronic communications.” Moreover, there were “44 interviews of Kodak personnel, Board members, and a third party with relevant information.”
In the final analysis, Akin and company concluded that Kodak was not in violation of insider-trading laws. Furthermore, Kodak Executive Chairman and CEO Jim Continenza appears to remain committed to his company’s new business model.
“Looking forward, we’ll continue to build on our strengths in print and advanced materials & chemicals, including our existing business in manufacturing pharmaceutical ingredients,” Continenza recently asserted.
All in all, Kodak appears to be fiscally able to move forward as a chemical manufacturer. At the third quarter’s end, the company reported consolidated revenues of $252 million along with a healthy cash balance of $193 million.
Granted, there’s a speculative element to Kodak stock. No guarantee can be made that the share price will return to its 2020 high of $60.
That being said, it’s entirely possible that $6 or $7 is too low a price for Kodak stock. The upside potential is there for Kodak shares if any piece of good news is released.
Kodak stock currently has a “B” rating and a buy recommendation in my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.