Investing in Unlocks: First Solar Unlocking 20 Million Shares
By Ian Cooper
On May 16, 2007, First Solar (FSLR) will unlock 20 million shares, adding about a third to its float.
Here’s why unlock dates matter.
When Under Armour unlocked 12.1 million shares, it doubled its 13.22 million-share float. That pressure sent the underlying stock down about $2.
But what happened to Under Amour wasn't a rare event. You see, when any company goes public, only a percentage of the company's stock is offered for sale, also known as the “float.” The rest is held and owned by underwriters, company officers and other insiders. By contractual obligation, insiders and underwriters can't sell their stock for a period of time, usually six months to a year from the date of the IPO. This is commonly referred to as the “lock-up period,” and it's set up to ensure that insiders cannot profit from the early trading frenzy generated by an IPO. It provides stability because insiders cannot simply dump their shares. Once the lock-up period expires, anything goes, and insiders are allowed to sell their shares.
If an insider has realized a significant gain on his investment, he may cash out. And in many cases, insiders cash in and flood the market with shares, forcing the stock price lower. Ordinary shareholders, unfamiliar with the unlock practice, are completely baffled. Share prices are dropping like a cement boot in the East River and they don't know why. Lucky for us, they panic and dump their shares at a loss, only adding to the glut and our profit opportunities.
And it’s likely we’ll see some downward pressures on FSLR when it unlocks 20 million shares, and the Cramer love-fest dies off. Here’s a stock that ran up more than 210% since its November 2006 IPO. It trades with a trailing PE that’s nearing 1,000 versus an industry average of 33. It’s also currently at 34 times growth, and 11 times book. Besides that, the polysilicon supply issue may ease going into 2008. And, oh yeah, there’s an unlock that’ll tack on 30% to the float.
Here’s how FSLR’s competition fared when they unlocked.
When Sunpower Corporation (SPWR) unlocked shares, the stock fell from about $40 in May 2006 to about $28.
Then, when Suntech unlocked shares in June, the stock fell from $30 to $22.
It’ll be interesting to see what FSLR’s 20 million share unlock will do to the over-bloated stock.
Keep it on radar.
Ian L. Cooper
Editor, Death Cross Trader
***48 Winners out of 56 Picks for Total Gains of 1,485%…
That’s the power of the Death Cross! We exploit overpriced stocks and the naïve investors who buy them, with an 86% accuracy rate with average gains of over 26% on every single recommendation! If you had put $5,000 into each trade, you could now be seeing as much as $74,267 in pure profit!
Discover what this powerful trading strategy can do for you… read more here.
| |