CEO Ruins Stock...
The Dynamic Wealth Report
August 27, 2010
by Corey Williams, Editor
A few months ago, I told readers about a stock ready to double. And in only two short months, the stock jumped from around $10 to over
$21.
But there’s a new development. I’ll tell you what to do in a moment…
First though, a little background.
The company I mentioned a while back is Industrial Services of America
(IDSA).
IDSA recycles stainless steel, ferrous, and non-ferrous metals. They
purchase scrap metal from industrial and commercial companies. Then they
sort, shear, cut, shred, and bale it. The bales of recycled goods are
sold to steel mills and other end users.
In essence, they turn one man’s trash into treasure for their
share-holders. And they’re doing a mighty fine job of it too.
Just look at their second quarter earnings. The results are nothing
short of spectacular.
Revenue skyrocketed by 137%! And earning catapulted by 155%! Earnings
per share jumped from $0.17 last year to $0.36 this year.
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The catalyst for their tremendous growth spurt was boosting capacity.
They added new equipment in July 2009. And they also expanded into
stainless steel recycling.
The business expanded almost overnight. But that’s where the good news
ends.
I think IDSA is heading for trouble.
Here’s why…
Back on July 21st, IDSA was trading for about $12. Management released
earnings guidance of $0.33 to $0.38 for the quarter.
The stock went parabolic on the news. It shot from $12 to over $21 in
two weeks.
But at the same time, insiders began dumping shares left and right. The
president and COO, CEO, and CFO are all selling stock like crazy.
Since issuing earnings guidance, insiders have sold a total of 97,000
shares in nine separate sales.
When IDSA released their actual earnings, they came in at $0.36 per
share. And the stock has fallen back to around $14.
If you ask me, this smells a little fishy. Why is management inflating
guidance just a few weeks before releasing actual earnings and selling
into the ensuing rally?
I think insiders are selling for a reason.
They realize the easy comparisons to quarters prior to the expansion are
over. Going forward, growth will be measured against quarters after the
expansion. That means big revenue and earnings growth isn’t going to
happen.
They knew it was their last chance to release astronomical growth
guidance. And they played it up to a T. They lined their pockets by
selling stock at an inflated price.
I’m not a fan of insiders pulling stunts like this.
If you didn’t sell for a double when you had the chance, go ahead and
sell IDSA now. Take your 40% profits and run. The easy money has already
been made.
Insider shenanigans and tougher year of year comparisons going forward
are all the reason we need to cut this stock loose.
• PolyOne (POL) was upgraded by
Longbow this week. They now have a buy rating and a $13 price target on
the stock. The chemical maker reported quarterly earnings per share of
$0.47 after posting a $0.02 per share loss last year.
• General Dynamics (GD) was downgraded to hold by
Argus this week. The aerospace and defense company is under pressure
from looming defense budget cuts.
• Morgan Joseph started coverage on Synta Pharmaceuticals
(SNTA) this week with a buy rating. The biotech company released strong
clinical data on one of their cancer drugs recently.
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