Kodak stock has been one of the most exciting stories among small caps this year. The recent price action reminds us of Martin Shkreli and the short squeeze he orchestrated with KBIO. Shkreli didn’t orchestrate the Kodak stock short squeeze, but his lookalike twin Jared Kushner did. However, management greed popped the bubble and many Robinhooders got left holding the bag.
But now, there’s hope in Kodak stock. David E Shaw has reported a 5.2% passive stake in the company. David Shaw is noteworthy because he is a real billionaire unlike Kushner or his father-in-law. Shaw was an unknown computer science professor at Columbia University when he used his superior math skills to design algorithms to pull money out of the markets. He didn’t have an inheritance like Trump or Kushner to fall back on. Now he’s worth over $7 billion and manages almost $50 billion. His best-known former employee is Amazon CEO Jeff Bezos, the richest man on the planet.
When we say Shaw is the smart money, it doesn’t get any smarter than D.E. Shaw & Company. So what in the world are they doing in Kodak stock? They smell opportunity and why their stake is big news for the bulls.
About Kodak Stock
First up, here’s a little background info for those not familiar with Kodak stock. Kodak is a global technology company focused on print and advanced materials & chemicals. The company provides industry-leading hardware, software, consumables, and services primarily to customers in commercial print, packaging, publishing, manufacturing, and entertainment.
US Federal Loan
Kodak stock ran up the charts at the end of July after receiving a $765 million government loan to help speed the domestic production of drugs that can treat a range of medical conditions and reduce U.S. reliance on foreign sources. Kodak received the loan after readying the production of ingredients for generic drugs, including the antimalarial drug hydroxychloroquine that President Trump has plugged as a treatment for COVID-19.
The loan, similar to a commercial loan, must be repaid over 25 years, Kodak CEO Jim Continenza told the WSJ. The company will make “starter materials” and “active pharmaceutical ingredients” used to make generic drugs.
Kodak Stock Blowback
The news sent Kodak stock to $60 as the shorts got squeezed and FOMO Robinhooders jumped in. However, the bubble quickly burst after reports of insider trading and an SEC inquiry. As a result, the loan is now being held up. Democrats in the Senate are investigating and White House trade advisor Peter Navarro said:
“Based on what I’m seeing, what happened at Kodak was probably the dumbest decisions made by executives in corporate history “You can’t fix stupid. You can’t even anticipate that degree of stupidity.”
It’s like in the movie Goodfellas. They committed the perfect crime, but they couldn’t keep their mouths shut and they went out and bought stuff. Kodak insider George Karfunkel donated 3 million of his 6.3 million Kodak shares to Congregation Chemdas Yisroel in Brooklyn, N.Y. The congregation was incorporated in Delaware in 2018 and uses a Brooklyn accountants’ office as its mailing address, New York charity-registration filings show. Mr. Karfunkel is listed in those filings as its president.
The securities filing said the gift took place on July 29, the day Kodak stock closed at its highest level since 2014. Using the average of the stock’s high and low that day of $38.75, which is how the Internal Revenue Service values stock gifts, the donation was worth $116.3 million. That would make it the single largest gift recorded to a religious group, based on a list maintained by the Chronicle of Philanthropy.
Here is the biggest misconception about Kodak stock – that it is simply a pump and dump shell. That is not the case. In Q2, Kodak stock reported:
- Revenues: $213M (-30.6M); Sales: $163M (-32,1%); Services: $50M (-25.4%).
- Net loss: ($5M) (-102.5%); operational EBITDA loss: ($7M).
- Cash at quarter-end: $180M (-13.9% sequentially).
Kodak has a market cap of just $440 million, trades at 0.36x sales, and has $2.83 per share in cash. Kodak stock looks awfully cheap here and that is the opportunity David E. Shaw sees.
Kodak stock is speculation. It’s not for everyone. It’s in a bull/bear battle with the shorts having shorted 20% of the float. Regarding the insider trading allegations, no doubt there was some hanky panky going on, but that has nothing to do with Kodak stock. We believe it will be investigated and the SEC will get to the bottom of it. With the election coming up and Trump needing a win in the rust belt, we expect things to get sorted before November and for the loan to be reinstated.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NYSE:KODK or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.