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June 24, 2008
Finally Some Good News at American Apparel
APP reached agreement on a new amended credit agreement with its lead bank. Back in early June the stock took a dive on the day the company announced that negotiations were ongoing but that the first deadline had been missed. Not surprisingly the shares are rallying nicely today, up 6.5% right now. Volume is decently above average but not huge.
Beyond clearing this up, a couple of other positives might be inferred. First, the agreement allows for execution of the recently announced stock repurchase announcement. Second, although not a “fact” it is notable that a company without a full-time CFO, in violation of Sarbox, and with admittedly weak finance expertise got the deal done. This might suggest that confidence in the numbers and management team could be a bit higher.
Maybe the tide will turn. More good news might come including (1) June comps, (2) possibly better than expected 2Q results as predicted by the Lazard analyst, (3) the hiring of a full time CFO and/or other senior management, and (4) announcement of progress or even compliance with Sarbox.
Still a risk are the sexual harassment trial against the CEO and founder (although if Dov wins that would be a positive) and a possible restatement of past earnings as a result of a new CFO/achieving Sarbox compliance.
The stock has lots of issues that will keep away most investors and analysts but I think the near-term risk-reward remains favorable and if the good news listed above hits a move back to $10 is very plausible.
Posted by Steve Birenberg at June 24, 2008 01:34 PM in eda
Oil keeps going up,financials keep going down and we have broken through the January and March 2008 lows.Except for gold,most stocks and especially the growth companies have been devalued.MICC and CETV previously have held up well ,but both of these great companies have been rocked in the last week.
Do you think we will largely stay in big trading range and avoid cataclysmic drops? Do you think this will remain a normal [in terms of depth and severity]recession/bear market or we again in for a "once in a lifetime bear market"as occurred in 2000 to 2002? Normally,it would be too late in a
normal recession to do any more selling.The severity of this last drop,HOWEVER, makes one wonder if one needs to protect more capital by short selling,put buying and an increase in cash positions.Until today,the number of new lows in the market had remained reasonable and much less than January or March of this year . Now all bets are off.Do you have any thoughts in this regard?
My opinion has not changed. We are now at the low end of the trading range. The risk remain we breakout to the downside. The news flow is terrible and quarterly earnings season will be tricky as companies are likely to be cautious on their second half guidance even if they have good 2Qs. I think we are oversold and would not be a seller here as I believe that we are due a relief rally. We could go straight down but I am not making that call. That said you should be invested more conservatively than normal with higher cash balances and samller positions.
Posted by: Steve at June 27, 2008 08:32 AM