Shares of Eastman Kodak are enjoying a renaissance. Shares were up 474% on Wednesday afternoon, starting on Tuesday almost as an eye-popping 200% plus gain. New capital and new business are the reasons. The question for investors now is how much can the shares go up?
It is not an easy question to answer. There are no analysts covering the company and no pricing aimed at helping investors. In addition, the company is taking out government loans to build a drug ingredients business. Kodak (ticker: KODK), has been and is in the imaging business. Estimating a huge new business is difficult for any investor to evaluate a company.
Kodak’s stock traded above $ 32 in 2014 with a return from bankruptcy protection. The stock has traded for about 0.3 to 0.4 times sales over the last few years. The company is trading for more than 1 time selling now, with more than $ 40 a share, adding to the new debt the government is providing. The old hills have already been eclipsed.
Shares hit $ 60 at one point Wednesday and are up 1.419% in the past three days, according to Dow Jones Market Data.
Is the stock too high? Kodak’s new business is generic medicine ingredients. Generic medicine makers trade for sales about 1.5 times. Of course, Kodak doesn’t have the business yet. And when that happens, all of his sales won’t be drug-related.
Generic medicine makers take about $ 1 in assets to generate 40 cents in sales. Based on that, Kodak’s new $ 765 million loan could bring in maybe $ 300 million to $ 400 million in sales. That, in theory, would be good, about $ 450 million to $ 600 million in market value.
That finger-in-the-air approximation. And investors need to increase in the following debt when valuing the entire enterprise. There is just no good way to know where a stock can go early in its transformation.
The move makes some sense. The loan, in one way, more than doubles the size of the company overnight.
On Tuesday Kodak was the most popular stock on Robintrack, a website that moves on to changes in Robinhood’s share trading accounts. More than 25,000 accounts have increased positions. General Electric (GE) was the second most popular stock, starting about 9,600 new positions.
Buying rather than selling is the technical reason every stock goes up. The amount of purchases helps explain how much the stock is increasing. GE has a market capitalization of over $ 60 billion. Its shares rose 2.6% Tuesday, in part, on higher interest rates than individual traders. Kodak is a micro-cap stock worth less than $ 350 million from Tuesday’s closing price. It doesn’t take much to get the shares moving.
Kodak’s stock has now risen by more than 750% a year so far, little compared to the gains of the S&P 500 and Dow Jones Industrial Average. As will be seen from here, the achievements will come. Investors, however, must prepare for volatility.
Early Wednesday, trading in Kodak shares stopped due to volatility but resumed after about 5 minutes. It was just a chance for investors to breathe.
Write to Al Root at email@example.com