Recent Share Price Movement, page-2

I like reading through ********.au articles relating to Aus companies, and unfortunately the only recent articles relating to SDA has been its mention in the 10 most shorted companies. 23/12/19 (13.6% shorted), 30/12/19 (13.1% shorted), & 6/1/20 (12.9% shorted).

These were the closing prices for these days: 23^rd ($0.75), 24^th ($0.84), 27^th ($0.92), 30^th ($0.94), and it’s stayed around this price to where we find ourselves today ($1.03). The rise of the price coinciding with the drop of short interest could suggest a “short squeeze”, which is when an increase of price goes against short sellers who can gain some money if the price goes down, but takes on the higher risk of significant losses if the price going up. The risk is higher because the value of shares can’t go lower than $0.00, but has no upper limit (no upper limit to their loss). So if the price goes up beyond their tolerable limit, they will need to cover their positions (buy back what they initially borrowed & sold), and this results in a buying volume that drives the stock up.

Then the question is, why would the price increase in the first place? I’m considering a number of factors:

1. A significant reason the price has fallen, is due to SDA’s large $625m Net Debt. However, In Speedcast’s 27/08/19 1H 2019 Results Presentation, it stated that the Leverage Ratio covenant increased to 4.5x, and at the date of 30/06/19 it was 3.6x. Speedcast made a “Leverage Ratio target below 4x at the end of 2019”. Since there has not been any announcements that this had to be revised, or was unsuccessful, this may suggest that this target had been achieved, hopefully indicating that the company is moving in the right direction.

2. Company oversold & undervalued? We have those shorting the company, automated trading including stop losses, psychological fear from a downward momentum, and a sentiment climate very fearful of a market-wide correction/crash. In 2 instances the Market Capitalisation of SDA was around AUD$169m (28/9/19 & 18/12/19). The half year results showed that SDA’s revenue is USD$357.6m (AUD$515.95), which is “higher” than last year at USD$304.8. Speedcast has reaffirmed its guidance for FY19 EBITDA in the range of USD$150-160m, which would be an “increase” from last year’s USD$132m. Not to mention that currently the P/E Ratio of SDA is 4.01.

I then ask myself, would a company whose debt appears to be under control, revenue & EBITDA increasing, is the world’s largest global satellite communications provider specialising in satellite connectivity for diverse fields, has customers in 140+ countries…would this company be worth only $169m in market cap?

3. Excitingly, 7 weeks away on 25/02/20 Speedcast will release their Report (Prelim). I believe there’s a possibility that there are certain people who’ve realised that the company has been greatly oversold, and it would be in their best interest to purchase shares now. Because if the results are favourable, then a company that had once reached $6.83/share (Market Cap of approx. $1,635.17m), may look very cheap at $1.03/share (Market Cap of approx. $246.53). For some, it’s a great opportunity, and for others (short sellers), it could be a devastating miscalculation.

Of course these are only some of my thoughts and opinion. I’d encourage everyone to do their own research.