Eastman Kodak shares enjoying a renaissance. The shares gained 160% on Wednesday morning, with Tuesday’s gains of an incredible 200%. Fresh capital and a new business are due to eye-popping growth. Now the question for investors is how high can the shares go?
This is not an easy question to answer. There are no analysts covering the company nor any target prices to help investors. What’s more, the company is taking government loans to build the pharmaceutical-ingredient business. Kodak (ticker: KODK) has been in the imaging business. Creating a big new business is difficult for any investor evaluating a company.
Kodak stock traded above $ 17 in return from bankruptcy protection in 2015, nearly 0.4 times its sales. The company is now trading for more than 1-fold sales, exceeding $ 21 per share, adding to new debt the government is providing. The old high has already been eclipsed.
Is it too much? Kodak’s new business is generic-drug ingredients. Generic-drug manufacturers trade for about 1.5 times sales. Of course, Kodak does not have business yet. And when that happens, there will be no drug related to its sale.
Generic-drug makers take $ 1 in assets to generate 40 cents in sales. Based on that, Kodak’s fresh $ 765 million loan could bring in perhaps $ 300 to $ 400 million in sales. This value would, in theory, be about $ 450 to $ 600 million in market value.
It is projected in the air with one finger. And investors have to add to the debt coming in while evaluating the entire enterprise. There is simply no great way to know how far a stock can go in its transformation.
The trick makes some sense. The loan, in a sense, doubles the size of the company overnight.
Kodak was the most popular stock on RobinTrac on Tuesday, a website that tracks changes to Robinhood stock-trading accounts. More than 25,000 accounts added positions. General Electric (GE) was the second most popular stock, opening around 9,600 new positions.
Buying more than selling is a technical reason for any stock to grow. The amount of buy is how much the stock is rising. GE has a market capitalization of over $ 60 billion. On higher interest from individual traders, its shares rose 2.6% on Tuesday. Kodak is a micro-cap stock priced at less than $ 350 million as of Tuesday’s closing price. It does not take too long for the stocks to move.
Kodak stock is now over 350% a year, rarely equal to the returns of the S&P 500 and the Dow Jones Industrial Average. What would be the benefit from here is anybody’s guess. Investors should, however, be prepared for volatility.
Trading in Kodak shares came to a halt due to volatility but resumed around 5 minutes later. It was a chance for investors to catch their breath.
Write Al Root at [email protected]