As someone who has followed stocks for years, but has only recently became a trader, I learned a few lessons a while back. I bought into the stock BRLC (Syntax Brillian). They make cheap, high quality LCD tv's that are marketed under the "Olevia" brand, and the company also owns the Vivitar brand that's used mostly for selling cameras.
I thought the stock was a risk, but I bought in and sold at a few different prices. Sometimes for a stop-loss, other times for a profit. Once, I made the mistake of buying on the way up. You know, trying to catch that upward momentum. I knew better, and got burned by that action. Eventually, for almost no reason, the stock plummeted from almost $4 to the recent lows of $2.19-$2.35. By "no reason," I mean that nothing fundamentally changed about the stock. Management continued to not release news, and for the most part, nothing changed other than the stock price. I think the drop is mostly a result of increased shorting and lack of market confidence. BRLC hasn't delivered for the past few quarters, and the market probably doesn't have confidence that they will this quarter either.
BRLC is a problem plagued company that has been doing some re-structuring to get the company back on track. Without going into details, they're near the end of a 120 day action plan that is meant to make the company more stable and profitable. Some of their actions have been hotly debated among shareholders, and the management has been mum about earnings and there is not much clarity coming from management. In the past, they've consistently missed earnings estimates, and it looks like they won't be releasing any new news until Feb. Without more clarity, it's difficult to estimate what their earnings are going to be. Right now, it seems like the company has been pursuing a strategy of increasing market share at all costs rather than increasing pps and stockholder value.
The fact that BRLC has been on the REG SHO list for over 200 days and the number of shorts keeps increasing is not a good sign. Well, unless you're betting on a huge "short squeeze". Also, some analysts have the stock pegged as a "buy" at $5 price target, while other analysts think the company is worthless. Right now, BRLC is actually trading for LESS THAN BOOK VALUE. That makes the purchase price attractive, and the fact that insiders have bought up huge blocks of shares recently also makes me want to purchase more. --If you look at the chart, there is a stock price jump to above $3 in Jan 08, and then the price quickly levels back off to low $2. MSN ran an article "pumping" BRLC as an undervalued stock, and there's probably what caused the pop there, in case any of you notice that.
I made some profit in real estate this year and dumped my BRLC at a loss before the New Year in order to have a tax write off. I see BRLC as largely a speculative play. They have huge income, and are trying to compete with Vizio in the LCD tv market. They're trying to grow at all costs, and some of the 120 action plan changes are designed to free up working capital. Quality wise, most magazines and reviewers give BRLC the edge hands down. Sometimes their tv's even beat out the higher end televisions from Samsung and Sony.
At this point, the stock is trading at below book value, and a few things can happen:
1. ( the unlikely) The company will be shorted to death or go bankrupt because they placed too much emphasis on growth instead of sound financial management.
2. (the obvious) The company will come out with earnings and either skyrocket (shorts covering + renewed buying interest in a profitable company), fall to below $2 on bad earnings, or continue to languish where it's at. If price continues to fall, a merger or buy out may be in the works.
3. (the wildcard) The SEC will get involved due to obvious naked shorting of this company.
Overall, with insider buying and the stock selling at below book value, BRLC is a risky, but potentially very profitable purchase right now. I was burned by this stock, several times, and right now, I don't feel like dabbling in the actual stock any more. Instead, I think this is the perfect "options play". BRLC options for $2.50 strike price in January 2010 are selling for about $100 right now. Until getting burned by BRLC, I typically stayed away from options. But in this situation, I find them attractive. Low investment, low risk, with possibility of huge returns. With a 2010 expiration date, the company has plenty of time to increase in value. When a company is trading at below book value, it has no place to go but up or bankrupt. I don't see BRLC going bankrupt. Therefore, I bought an option, and might pick up a few more on the next dip. Of course, I would not advise short-term options here, as this is a speculative play. -To re-hash what I just said... I think the 120 day action plan is working or will work, and by 2010, I expect the stock to be worth much more than $2.50 a share. A $100 option sounded cheap and low-risk, so I bought. (Actually, I bought in above $100.)
If you do a bit of internet research, you can find all sorts of love and hatred of BRLC on the web, and a wide variety of earnings estimates and ratings. Simply put, from my research, management has not released enough clear info to make a clear, reliable earnings guess and that's probably part of why the price is down below book. Well, that and a history of missing earnings estimates (although I hear they revised and low-balled this quarters earnings estimates...another disappointment would only drive the stock down further). --Going long with this stock is not for the faint of heart.
--Lessons learned: 1) If want to put some money on a risky stock, then consider buying an option with a long term expiration date first. It's cheaper and lower risk than actually owning the stock. 2) don't buy hoping to ride a stock price up. Stick to the plan of buying low and selling high and be careful about jumping on the bandwagon during temporary momentum swings.
