Q: Hi, The stock has been on a precipitous decline, almost every single day( Down over 35%, from post earnings high ) and can's seem to find a floor. The earnings were considered to be spectacular, but what spooked the market, perhaps was the owners' sale of 2.8 mln shares @ $17.31, being 8.5% below the prevailing market price, causing a surge of sellers and profit takers.
Most of the infrastructure/steel fabricators companies stocks are doing excellent, but DRX happens to be an outlier. Should this be a red flag and a concern ?
5i recently bumped the stock weight in the Growth Portfolio to 2.5%, which speaks of your conviction.
Do you see the market sentiment shifting and stock trading back to its recent high, any time soon?
Thank You
Most of the infrastructure/steel fabricators companies stocks are doing excellent, but DRX happens to be an outlier. Should this be a red flag and a concern ?
5i recently bumped the stock weight in the Growth Portfolio to 2.5%, which speaks of your conviction.
Do you see the market sentiment shifting and stock trading back to its recent high, any time soon?
Thank You
5i Research Answer:
Small caps can be weird traders, certainly. The reaction to the insider sale seems overdone to us. It was the company that bought back the shares, and this implies management has conviction also. Plus, the insiders still have more actual money at risk even with the sale, because of the 251% gain in the stock over the past year. There has been no negative corporate news and estimates/outlook have not changed at all. It is still a riskier small cap company, but at 9X earnings we think it looks good. To get to its prior high would imply a 54% move, and we would be cautious not to assume those types of gains, but certainly our conviction remains strong here.