Yesterday, there was a tidal wave of trading in one of my favorite stocks: Armanino Foods of Distinction (symbol AMNF on the pink sheets). In the space of four minutes, just under one half of one percent of all the outstanding shares of the company were traded. The stock plummeted about 17% during that period. In the 45 minutes that remained of the trading day, the stock recovered about two-thirds of the loss to close at $1.05 per share. For the entire day, volume ran at about nine times the average volume for the stock. So what was going on? In truth, all that I think happened is that somebody who was either in a major hurry or who does not understand how to trade a microcap stock sold out his or her position. Nothing else.
There was no news that could explain the move. It is true that on Thursday, Armanino announced its dividend for the quarter. The dividend amount was the same as it has been for at least the last year. I had hoped that the company would use its record earnings to increase the dividend, but that will probably come later this year. There is no other news. Certainly, there is nothing here to set off a selling panic.
There has been no fundamental change in the markets that could explain the move either. Some commodity prices have fallen (like wheat) while others have risen, but none of this would change the outlook for Armanino's earnings.
It is true that Armanino has seen a major rise in its stock price. It has moved steadily from about 90 cents to a price in excess of $1.10; however, there have been strong fundamentals to back up the share price. It would not be surprising to see some profit taking now, especially from a shareholder who was waiting to see if the dividend would rise further and thereby cause an additional rise in the price. The problem yesterday, though, was not profit taking; it was dumping. It looks like someone put in an order to sell over 100,000 shares either at the market or at consistently lower asking prices. For a microcap like Armanino, this is hardly a good way to trade the stock. Trading has to be done more gradually. If one wants to sell 100,000 shares, it is best to sell in smaller blocks. Over the years, I have sold close to 100,000 shares on two different occassions. Each time, I sold in increments of no more than 10,000 shares, and sometimes I sold just 2000 or 3000 at a time. The first time I did this, I sold the stock without lowering the stock price at all. The second time, I sold into strength and the price actually was up 3% by the time my selling program was over. Each time, the sales took two to three weeks.
The key question now is how the rest of the market will react. There are always those who will panic when they see a decline like yesterday's intraday debacle. While the recovery yesterday was comforting, the debacle still leaves a nagging question as to what caused it. If you are concerned, I suggest that unless and until there is a reason made public for the sudden decline, you put it out of your mind. This was a one time event brought on by poor trading. In addition, if there is indeed some bad news out there (which I doubt), the company is now on notice that the news has leaked, and it will be forced to announce it now or be faced with all sorts of lawsuits in the future. I have a good friend who is an expert trader who always says "price is truth!" Under that view, yesterday's decline would be a major sign of danger. For what it is worth, he bought more stock in Armanino yesterday. Maybe we need to amend that adage to "price is usually truth, but then again, maybe not!"
I still rate Armanino a strong buy with an 18 month price target of $1.50 per share.
DISCLOSURE: I remain long Armanino.
There was no news that could explain the move. It is true that on Thursday, Armanino announced its dividend for the quarter. The dividend amount was the same as it has been for at least the last year. I had hoped that the company would use its record earnings to increase the dividend, but that will probably come later this year. There is no other news. Certainly, there is nothing here to set off a selling panic.
There has been no fundamental change in the markets that could explain the move either. Some commodity prices have fallen (like wheat) while others have risen, but none of this would change the outlook for Armanino's earnings.
It is true that Armanino has seen a major rise in its stock price. It has moved steadily from about 90 cents to a price in excess of $1.10; however, there have been strong fundamentals to back up the share price. It would not be surprising to see some profit taking now, especially from a shareholder who was waiting to see if the dividend would rise further and thereby cause an additional rise in the price. The problem yesterday, though, was not profit taking; it was dumping. It looks like someone put in an order to sell over 100,000 shares either at the market or at consistently lower asking prices. For a microcap like Armanino, this is hardly a good way to trade the stock. Trading has to be done more gradually. If one wants to sell 100,000 shares, it is best to sell in smaller blocks. Over the years, I have sold close to 100,000 shares on two different occassions. Each time, I sold in increments of no more than 10,000 shares, and sometimes I sold just 2000 or 3000 at a time. The first time I did this, I sold the stock without lowering the stock price at all. The second time, I sold into strength and the price actually was up 3% by the time my selling program was over. Each time, the sales took two to three weeks.
The key question now is how the rest of the market will react. There are always those who will panic when they see a decline like yesterday's intraday debacle. While the recovery yesterday was comforting, the debacle still leaves a nagging question as to what caused it. If you are concerned, I suggest that unless and until there is a reason made public for the sudden decline, you put it out of your mind. This was a one time event brought on by poor trading. In addition, if there is indeed some bad news out there (which I doubt), the company is now on notice that the news has leaked, and it will be forced to announce it now or be faced with all sorts of lawsuits in the future. I have a good friend who is an expert trader who always says "price is truth!" Under that view, yesterday's decline would be a major sign of danger. For what it is worth, he bought more stock in Armanino yesterday. Maybe we need to amend that adage to "price is usually truth, but then again, maybe not!"
I still rate Armanino a strong buy with an 18 month price target of $1.50 per share.
DISCLOSURE: I remain long Armanino.
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