Just two weeks into the new year, and micro-cap has rallied 12% from the close of 2018, while the major indices are in the +4-6% range.
There’s not many companies that can say they went from $1 to $30. There’s even fewer that have a chance at doing it twice. On Friday Flotek started the long journey back. Going from $1 to almost $3 because they changed the trajectory of the entire company by selling a chemical plant they bought in 2013. Selling it to ADM for $175M after they bought it for cash & stock for a hundred. They don’t even have to pay the taxes on the gain (to be paired against loss carry forwards…link.) A turnaround completed in one day, because it was more than just a sale that eliminated their debts; ADM became a partner.
In connection with the sale of FCC, Flotek and ADM have entered into long-term reciprocal supply agreements. The first will secure Flotek’s long-term supply of d-limonene. Additionally, Flotek will manufacture differentiated chemistries for Florida Chemical’s industrial customers. Finally, the companies will explore opportunities to jointly develop next-generation chemistry technologies for the oil and gas and agricultural industries.
Following closing of the transaction, Flotek will focus its efforts on providing its global clients best-in-class solutions designed to maximize performance of their oil and gas wells, while simultaneously lowering well costs and fluid complexity. Flotek intends to use the net proceeds to pay off its credit facility balance of approximately $50 million. In addition, the Company is currently considering investing $20 million to $30 million in previously identified organic growth capital projects and will carefully review other future potential uses of the remaining funds.
Flotek’s main business (Energy Chemistry Technologies, ECT – 75% of total revenue) was already finding a bottom. Their Consumer & Industrial Chemistry Tech (CICT – 25% of total revenue) is starting to grow sequentially. By paying off their debts, investing in growth, and adding ADM, the cost restructuring they’ve already been doing could drastically change the financial profile. Friday’s 144% move up wasn’t hype.
(Link to December investor presentation, here.)
Pier 1 Imports (PIR) +108%.
An Example of How to Trade Year End Tax Selling.
On December 4th Pier 1 put out an announcement that the company would hold a conference call with the CEO on the 19th. On December 19th a different CEO was chosen to announce their financial results. With the market already in freefall, the selling pressure took PIR under $1, which eliminated the last support the equity could have. The stock collapsed into year end tax loss selling…washing it out completely to 28c at the low. The perfect formulae for an exponential snapback.
There’s been no announcements this year. Yet, PIR has tripled because there was nobody left to sell. An example of what to look for as year end tax selling always produces targets.