CVSL Update – Management Call to Action
We believe that CVSL’s stock price (currently trading at 80 cents) is a short term anomaly and that it is currently trading well below any valuation that could be rationally based on its assets, operational performance or growth trends. CVSL’s stock exhibits all the signs of a stock that is under heavy attack by short sellers. We believe it is time for action to address this situation and wanted to provide the community an update on where we stand with CVSL –
1) We have confirmed in a conversation with CVSL’s investor relations department that the original 2 million share short position remains largely intact, with only 50,000 shares covered as of the most recent measure (Dec. 29, 2015) provided by the company’s share surveillance firm Share Intel. Additionally, it appears that a second naked short position by a different entity may have been established for approximately 500,000 shares, which would bring the total naked short position as of December 29, 2015 to 2.45 million shares.
In the nine trading days since that report was issued by Share Intel (the surveillance firm hired by CVSL), CVSL’s share price has fallen an additional 20% leading us to believe that there has likely been no covering of that short position and more likely that additional shares have been sold short.
2) We believe that there are a number of false narratives being spread about CVSL and its owned companies and that this negativity in addition to the large and growing naked short position are pushing CVSL shares lower.
3) In an informal survey of Groove participants we compiled over the last few days, we learned that at least 11% of CVSL’s 11.8m share public float is now controlled by Groove participants and more than 25% of that stake has been acquired over the last 30 days. Thus, while the short sellers have been amassing a naked short position equal to 4 – 5 weeks average trading volume, Groove participants have been scooping up shares at these lower prices making the float situation that much tighter.
We believe there are several things investors should consider –
1) Record Revenue / Closing on EBITDA Positive – We believe that the company just finished a quarter that will be the largest revenue quarter in its history and that the company may be very close to achieving its first EBITDA positive quarter.
2) Large Cash Position – We believe that the company finished the year with over $14 million in cash, enough to buy back the entire public float at a very large premium.
3) 1 Million Shares Taken Back – In a conversation with CVSL Chairman John Rochon, we questioned the issuance of 1 million stock options a few months back that we believed would be too dilutive given how low the stock was trading (which was just over $1.50, about 90% higher than yesterday’s close). We are very pleased to note that our concerns were alleviated when those shares were taken back, as the issuance of those options were rescinded last week. (link to 8k). We want to commend management for hearing our concerns and taking affirmative action to protect shareholder value in this way. We believe that any management action that in any way suggests the value of a share of CVSL might be below $3 is wrong and there should be no shares sold below that level.
3) Conference Call – We are working to schedule a call with CVSL Chairman John Rochon this week to discuss additional steps that we would like to see the company take to protect shareholder value, including but not limited to –
A) Board authorization for stock buyback –
At current prices, CVSL’s balance sheet and cash flow would allow the board to buy back the entire public float (11.8 million shares) at a 50% premium ($1.20 / share) to the current share price of 80 cents. While there are restrictions that would make open market purchases of that many shares difficult to do without pushing the stock up to prices much higher than that, we would like to see the board take action to buy back as many of the 6.7 million shares we sold last year at $3 as possible, given what we feel is a dramatic increase the value of the company’s assets since those shares were issued and the likelihood of the company achieving profitability in 2016.
B) Aggressive Action to Halt Naked Short Selling –
We would like to see the board to take the most aggressive approach possible in dealing with the growing naked short interest that the company share surveillance firm has uncovered, including but not limited to seeking a formal investigation by FINRA, the SEC, etc.
C) No More Dilution –
Management affirmation that additional stock will not be issued below $3 unless it is currency for an accretive acquisition. At current levels, we see CVSL as the best investment in the space and we would like to see a quarter or two without M&A expense while the company invests in its own stock.
D) Address Rumors With Shareholders
We would like to see the early release of Q4 earnings and/or revenue figures to dispel one of the main negative rumors or if early release is not a viable option, we would like to see the company either issue press releases about happenings at CVSL or its wholly owned companies and / or schedule an open conference call to allow investors to ask questions and allow management to address current events in a bid to dispel the negative rumors.
We have made contact with the company over the last 24 hours to arrange a call to discuss these things with CVSL Chairman John Rochon and/or CVSL management and we will report what we learn back to the community after it occurs.
In summary, we believe CVSL is trading at levels that bear no relation to the publicly available information about the company’s assets, operations or prospects. From every source available we have seen only positive indicators of where CVSL and its businesses are performing and trending with some indicators suggesting things are extremely positive. We believe the stock will rally sharply when the company takes action to address the short selling situation and also when investors begin to understand that CVSL is actually performing quite well. We believe that CVSL trading below $1 is ludicrous and that the ability to buy shares at these levels is likely a fleeting opportunity.