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Tuesday, June 30, 2009

SKBI at Higher End of Range - Free to Scream

Will it gap down first or gap up? I don't know. Don't know don't care. I would buy a gap down if it even happens (today may have been it). I just have learned that low floats and EPS like this (rare) usually attract strong interest from momentum/value funds/traders. Whether it be tomorrow, Thursday into the holiday weekend, or next week, I think momentum/value funds/traders/investors will come for this stock. Read my analysis below.

SKBI priced known secondary in accordance with NASDAQ listing tonight at $12.98 , 63%higher than the original $8 range! In my opinion this speaks to the strong demand and the fact that trailing 12 months EPS is $3.39 and Trailing P/E is only 5 at a share price of $18 See Link. Read my DD why I think at current run rate this company has potential for $3+ EPS this year and $4+ next year - after this offering. Again, read why I am in this stock (the purpose of this blog is to post my ideas only) and do not chase any stock or buy it because I am in it.

I have been buying and blogging SKBI (was SKBO.OB prior to Friday) since the $11 range See Blog Post. Well as expected the Company moved to the NASDAQ this last Friday and closed at $20 per share. This week I expect them to complete a known share sale as part of the move to NASDAQ and to fund amazing expansion capabilities for their business.

Updated Float Analysis: Skystar has approximately 1.869m shares outstanding pre-secondary. On page 38 of the most recent S-1 Read S-1, it states that between management and two funds there are approximately 1.5m shares held. On page 7 it states management is locked up for six months from the date of the secondary. That would put SKBI at a float of approximately 369k pre-secondary if my calculations are correct. When the 1.6m shares are sold this week, I would guess that not many are going to flip this stock for $5-$10 dollars with this EPS potential. Depending on how many hold these shares, SKBI could have a float range of approximately 369k to 1.769k (Mid-point is 1.1m).
Lastly, according ot this article out last week, SKBI is on the naked short list (have not confirmed) Read Article

Updated EPS Analysis: In 2008 (see the presentation and the S-1 they did $3.07 EPS on the shares outstanding), Skystar had $5.6m of net income that included $1.1m of non-recurring expenses, or $6.7m adjusted net income.

Skystar had approximately 1.869 shares at the beginning of FY2009. They will sell 1.6m shares this week, however those shares will only be outstanding approximately six months of FY2009. So fully diluted weighted average shares for FY2009 should be approximately 2.769 (1.869 + half of 1.6m).

If I divide the FY 2008 adjusted net income by the new post-IPO share count of approximately 2.569m, I get EPS of $2.51. Skystar would only have to grow net income by approximately 20% in 2009 to have EPS of $3. However, in the first quarter of 2009, net income was up 72% YOY! It is easy for me to see how this Company could potentially do over $3 EPS for FY2009. Lastly, as discussed in my original blog post, in FY2010 expansion sales give the potential for approximately another $1 EPS. So I also see that potential for this Company to do over $4 EPS in FY2010.

The expected price range of the share sale this week is $9-$11 ( I would guess the high end and personally question if they could get more)? The stock could either pullback creating what I would consider a nice opportunity to buy or gap up as it is already on the NASDAQ now.

One thing is for certain, considering the P/E of approximately 24 that recent IPO DGW is trading at as of last week, combined with my calculations of $3-$4 EPS potential and the ultra low float of SKBI, it is easy for me to be very excited of what SKBI potentially could do.

I am long SKBI with an average of approximately the $12 range.


mango said...

it will fly!
congrats for seeing it before too many.

Anonymous said...

Superman is a great trader. I have made loads of $$$$$$$ following his picks

Anonymous said...




Anonymous said...

from mirc.......

Superman: SKBI eventually will work big and so will RINO

Anonymous said...

from mirc.....

Superman: SKBI 10k bidder

Anonymous said...

It's just me covering my short when you said go long

Anonymous said...

from mirc...

Superman: SKBI game just beginning

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