Moribund telecom company NII Holdings (NIHD) has appeared to be on its way out for some time. However, the last two days of trading have showed a sudden and surprising rebound of over 35 percent for the company’s shares.
Statement in Panel Discussion May Have Started Run, but Likely Didn’t Drive It
NII is up over 15 percent on Friday after climbing 19.35 percent on Thursday. That puts gains for the two days at close to 40 percent over the two days.
The catalyst for the gains is probably a statement by Vice President for Institutional Relations and Communication of Nextel Mexico, Cristina Ruiz de Velasco, who stated in a panel discussion that Mexico needed to increase the level of competition among wireless carriers to improve the penetration of technology in that country.
A 40 percent two-day gain because of a statement about government policy? That doesn't seem realistic. But, there may be more to the story.
It’s unlikely that this statement alone is driving gains, but the fact that the start of gains on Thursday appear to correspond precisely with the timing of the news of the statement, there would appear to be at least some correlation. What’s most likely is that the statement starting some buying action in a volatile stock that was picked up on by momentum traders and started to snowball.
Gains are Tiny When Compared to Losses
Before anyone gets too excited, it should be noted that in the year prior to the last two days, NII Holdings had plummeted nearly 95 percent. The company; which provides Nextel (S) service Brazil, Argentina, Chile, and Mexico; has been hemorrhaging both money and customers for some time now.
A quick look at the last few quarterly reports (or, for that matter, annual reports) paints a pretty clear picture. The company’s losing money pretty consistently and revenues are steadily declining. From the start of 2011 to the end of 2013, the company went from a full-year net income of $225 million to a loss of $1.65 billion. The ugly balance sheets appear to be driven by NII’s consistent shedding of its customer base, with the worst damage coming in Mexico.
Q4 2013 Was REALLY Bad
The most recent indignity for anyone so unlucky to still be holding NII stock at the end of February was an outright brutal Q4 earnings report from the year prior. On top of the $746 million net loss (nearly half of that ugly FY number), the company reported that it had a net loss of nearly 400,000 subscribers in Mexico alone and nearly 250,000 subscribers overall.
But most troubling was the statement that the company "will have to significantly improve its operating performance and consider other options to enhance its liquidity position to meet its financial obligations and fund its business in 2015 and beyond."
This resulted in single-day sell off that reached 55.34 percent. Or, as it’s sometimes referred to, the ole “we just had to publicly state that we’re about to run out of money” sell-off.
Improving Outlook Doesn’t Slow Fall with Intermittent Volatility
The company issued a press release on March 10 stating that it had hired UBS (UBS) as a financial advisor to examine its strategic options moving forward, and the Q1 2014 earnings report was significantly better with the losses almost cut in half quarter-over-quarter. However, that did little to arrest the heavy selling, and the company was still off over 80 percent from the release of its Q4 2013 report to yesterday.
But that’s not to say there weren’t brief explosions in price. While NII has been going into the tank, it’s also become one of the more volatile stocks out there, which the potential for huge daily price swings.
Most notably, Monday May 12, after that more-positive Q1 report, the stock spiked early, shooting up over 20 percent in early trading then sharply falling off. Then, on May 21, without any specific news item appearing to drive it, the stock shot up almost 45 percent over the course of the day only to reverse momentum heading into the final hour of trading, fall sharply, and end the day up 15 percent.
So What Gives With June 6?
So, when trying to determine what, precisely, is sending shares soaring from June 5-6, it’s important to remember a few factors.
Firstly, those sort of huge intraday swings are catnip to momentum traders and day traders. These are people who liquidate their entire position at the end of each day, so a gap up and steady trading won’t make them money. They need stocks that are going to fluctuate wildly. So, any small- or micro-cap stocks that show they can make moves like that are clearly going to be on their radar.
Secondly, NII Holdings has a few other things going for it that can increase the odds of a huge swing. Namely, it’s average daily volume is high (just over 4.25 million), its share price is low (even after the last two days, it’s just barely cracked $0.60 a share), and its market cap is pretty tiny (just cracking $100 million after Friday’s gains). All of these point to a stock that’s got a chance to be pretty volatile in the right conditions.
And, finally, the company’s price has arguably fallen to the point where it’s a fairly attractive value play to some. While it has no earnings to speak of, the company’s price-to-sales ratio has plummeted to 0.02 and its price-to-cash ratio has hit 0.06.
Taking all of this into account, it’s possible that this stock had really reached a combination of conditions that had it ready to run. As such, while the comments of one executive during a panel talk calling for a change to government policy is hardly enough to spark a 40 percent run over two days for most normal stocks, it could definitely be the nudge that got this boulder moving.
What’s next for NII? Well, the future’s clearly going to rely on the company’s ability to generate actual profit. It’s currently neck-deep in debt, WAY over leveraged, and looking for a way forward. If it can start to generate real profit and halt the erosion of its customer base, this could just be some smart value buyers getting in when the timing’s right. If not? This is just a dead cat bounce as NII continues its long road to bankruptcy.
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