No, this isn’t 1995. Yet Eastman Kodak (NYSE:KODK) has become somewhat relevant once again. However, Kodak stock isn’t in the news as a camera company or in cloud-management for photos. Instead, it’s for its role against the novel coronavirus.
It makes very little sense, right?
Long story short, Kodak stock had been off of investors’ radar for years — even before it filed for bankruptcy in 2012. However, the company continued to manufacture chemicals, some of which are used in pharmaceuticals.
Questions arose after the company was offered a $765 million loan. That helped pump the stock from $2.62 on July 27 to a high of $60 on July 29. Does any of this sound fishy to you? It should.
On July 27, before the news broke, Kodak stock commanded a market capitalization of roughly $115 million. So the company qualified for a loan 6.5 times larger than the entire value of the company?
That followed almost $900,000 worth of lobbying money spent by the company between April and June, after spending $5,000 in the first quarter of 2019. Those actions occurred alongside some insider buying and unusual vesting schedules, followed by an internal investigation.
Kodak is forging forward with its plans, but let’s be honest, this is not an investable situation. From its highs made in late July, shares are down almost 90% already. I don’t know what will come of Kodak & Co., but this story reeks of issues.
We are investors, not gamblers. Rolling the dice on this, “could have a loan, might not have a loan” game is ridiculous. Quite frankly, it’s an insult to true investing principles.
It’s a bet on whether volatility in Kodak shares work for or against a traders’ position. Instead, I prefer looking for companies with long runways of growth and solid financials. Companies with meaningful cash flows and aggressive traction in big markets.
Even if the Kodak procedures turn out to be legit, what type of business are we talking about here? One where Kodak is a pharmaceutical chemical manufacturer? Does that have long-lasting financial stability?
Look at those questions in the prior paragraph. There are simply too many when it comes to this name to take it seriously.
Instead, focus on the long runways in tech. That includes trends like e-commerce and strong semiconductor demand. The latter is seeing growth from gaming, A.I. and datacenter processes. Or if the coronavirus is your focus, take note of the high-quality biotech companies in the space. Those with strong balance sheets and cash flows, and strong pipelines with something to fall back on if they don’t get the Covid-19 treatment right.
Bottom Line on Kodak Stock
For many investors, they view the situation as black and white. Either Kodak stock is a buy or it’s a sell. I would argue that it’s actually a no-touch.
You see, shorting Kodak is just as dangerous — if not more dangerous — than buying it. Just look at the way shares exploded higher in July. Now that type of action may not be in the cards going forward, but there’s no guarantee that it’s not in the cards at all.
That’s where the risk lies for shorts.
Hypothetically, longs could see this name fall from $7.80 to $2 overnight. That would be a 75% loss. However, if shares go from $7.80 to $17, that’s a loss of almost 120%. Not to mention the short-squeeze that could push this name even higher. That last thing investors want to see is a 200% or 300% move against them.
I don’t think it deserves to rally, but that doesn’t mean it won’t. As a result, let’s do what makes the most sense and avoid Kodak stock completely.
On the date of publication, neither Matt McCall 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.
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