Friday, December 3, 2010

The Overnight Sensation: TSR Corp

Two and one-half months ago, TSR Corp. (TSRID) was discussed on this site as a potential value investment. Today, its price sits more than 50% higher. Did the business change at all in the last 2.5 months? Not really.

This isn't one of those companies that saw its price rise over the course of a few months as a result of a constant stream of positive business developments. Instead, the stock price saw almost all of its gains occur on a single day earlier this week on no news, but following the execution of its one-for-two reverse stock split!

In a reverse split, the number of shares outstanding is halved (so if you owned 100 shares pre-split, you would own 50 shares post-split), so one would expect the price of each share to double, which would leave the company's value as a whole (its market cap) unchanged. Instead, the company's market cap increased from 50% to 100% in wild, volatile trading.

What's going on in the mind of Mr. Market? There could be a variety of reasons why demand for this stock is out-pacing supply. Perhaps indexes have to purchase this newly created ticker, TSRID, while potential sellers are unaware that their previously-named TSRI stock currently trades under a different ticker. Either way, it doesn't really matter why Mr. Market's moods change; what matters is what you do with his sometimes foolish, rather illogical behaviour. Value investors who purchased this company because it traded at a large discount to its net current assets and because it was unlikely to lose value were rewarded with a handsome profit, as the stock moves from the Stock Ideas page to the Value In Action page.

Disclosure: None


Anonymous said...

They did the reverse stock split and cut the outstanding shares in half. Prior to the reverse split TSR was trading between 4 and 4.5. Wouldn't that make the post reverse stock split price somewhere between 8 and 9. At 5.7 it's even cheaper than it was prior to the corporate action. Nielfiel

Saj Karsan said...

It traded around 2 to 2.30 for the few weeks before the split

Anonymous said...

Yeah, I just realized that all the prices were split bad. Sorry for the waste of time. I think however that net net current asset value is probably between $5.5 and $6. Nielfiel

Mike said...


How would a patient value investor who do not monitor the daily value of his or her holdings take advantage of this situation when the window of opportunity is less than a day, maybe a few hours at best. It was only bought to my attention when I notice the ticker symbol change.

The price seem to have stabilized around $5.50. Maybe there could be another run up in the price. I guess the best way to play this is to set a limit sell order.

Saj Karsan said...

Hi Mike,

Yeah that's a tough one. I think limit orders, as you suggest, are the way to go, along with checking your stocks every couple of days. A spreadsheet (like this one) that automatically downloads price data for you, can help make your review of prices quick and painless.

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