As many of you know I am originally from Rochester NY, so anytime my hometown hits the national news I take an increased interest. Well the past three weeks have been a roller coaster ride if you’ve followed any of what’s happened with Eastman Kodak. There is a lot going on so why don’t we recap?
On July 28th it was announced that Kodak had won a loan from the federal government for $765 million to help create prescription drugs domestically. The loan caught many by surprise as this was a pretty big shift from what Kodak’s traditional business model entailed. After the news broke Kodak’s share price exploded and was up almost 2,200% at times over two days. No that is not a typo, I meant two thousand two hundred percent. While that price appreciation is nothing short of ludicrous, it was actually what happened before that started to draw scrutiny.
On July 27th, the day before the announcement, Kodak’s average volume jumped from roughly 230k shares to over 1.6 million. That jump in volume brought with it a roughly 26% increase in share price. This lead many people in the industry to cry insider trading. It was announced later that week that Eastman Kodak granted CEO Jim Continenza 1.75 million stock options. Which is awfully close to the spike we saw in the average daily volume, quelling some of the suspicions. To complicate matters further, nearly 30 million shares of common stock was created when investors converted their convertible bonds into stock further saturating the market. But no, that isn’t it, just a week after the story broke, the SEC announced that they were investigating Kodak due to all of the previous week’s insanity. In light of all that is happening, the federal government decided to put the potential loan to the company on hold.
Whew, that was a lot to cover quickly! To sum it up, Kodak saw a massive jump in price due to a potential government loan. Said loan was temporarily nixed due to everything surrounding the company which caused the price to fall back to earth. While this might seem exorbitant, really it is just a sign of the times, and one any one of us could find themselves caught up in. With the 24-hour news cycle, sensationalism in the media, and rampant speculative trading, stuff like what is happening to Kodak is happening all over the place to varying degrees. Taking the time to fully understand the products you’re investing in is a critical step that could make all the difference. So next time you see that hot stock return 2,200% ask yourself is this too good to be true and give us a call to discuss.