“Retail investors are barging into shares of troubled names, and even companies already in bankruptcy proceedings“– Paul Ebeling
Medley Management Inc. (NASDAQ:MDLY) soared this month. The firm’s private-debt business filed for Chapter 11 protection in March with plans to repay its debt with new stock.
The Reddit optimists can point to more than just AMC and GameStop. Rental-car company Hertz Global Holdings Inc.’s survival was in question a year ago. It tried to sell shares to prop itself up, but admitted they could be worthless, prompting the Securities and Exchange Commission to block the offering. But its Chapter 11 restructuring ended up returning value to shareholders, which almost never happens.
Rallies in AMC and GameStop’s stocks have captured the public’s attention, but credit markets have been moved, too. GameStop no longer has debt, but AMC’s bonds have recovered dramatically.
It’ is no coincidence that some of the most troubled companies are now the ones benefiting the most from retail-driven rallies. Their massive debt loads, coupled with the devastating impact that the VirusCasedemic chaos had on their ability to generate revenue, were among the reasons their stocks are so heavily shorted in the first place.
Redditors have specifically targeted stocks with huge bets against them.
The Reddit rallies are slightly changing the way we approach investments. The dynamic of these rallies is interesting and is a sign of excess liquidity in the market.
GTT, an internet infrastructure company, spiked to an intraday high of 4.75 on 3 June after sinking toward 1. The company caught the eye of Reddit traders, who pointed to its small market capitalization, high short interest and the CEO’s previous business turnarounds.
The company has repeatedly extended its forbearance agreement with lenders, something that has been interpreted in online forums as a lifeline, which it is.
Washington Prime Group (NYSE:WPG) the owner of shopping malls reeling from the pandemic, has also attracted retail traders. Like GTT, it has a forbearance pact with lenders and appears headed for bankruptcy court.
Its stock is up 118% the past 2 wks. A lot of retail investors are very smart.
As the pros start factoring in the meme-stock craze, it is clear the gap between old-style finance and the new ways is wide. Books are being written.
“Wall Street & Main Street aren’t even on the same continent anymore,” Reddit user baddfish2 posted Thursday on WallStreetBets.
Have a healthy weekend, Keep the Faith!