CVSL Pre-Announces $50m Q and Initial Naked Short Steps

January 29, 2016 at 11:59 am Leave a comment

As of the open on January 29, Groove participants now control just over 15% of CVSL’s public float. As mentioned in our last update, a very significant percentage of these shares have been acquired over the last two months as CVSL (NYSE Mkt: CVSL) shares have been hit very hard by selling that seemed to be at odds with we believed to be an increasingly positive outlook for the company’s operations. Yesterday’s midday press release from CVSL confirmed each part of our buy thesis –

1) CVSL’s operations are not faltering, they are hitting on all cylinders. Management confirmed that they expect to report revenue between $49-$50m for Q4, representing a 35% sequential increase over Q3 and a 50% gain over last year’s Q4 top line. We believe CVSL will report a stronger bottom line as well with significantly improved margins and numbers that will give a strong indication that the company is poised to achieve profitability in 2016.

Groove participants should understand that the most important aspect of yesterday’s report may just be that they actually released it and that is for two reasons –

1) We know that they are not deaf to shareholder concerns like so many companies are these days and

2) the information vacuum that existed since the end of Q3 had allowed short sellers and others who had an ax to grind spread many negative rumors about CVSL that seemed to catch a following as the stock continued it’s descent. During Q3 CVSL stock had traded in a range between $1.50 and $3 before closing at $1.67 on Sept. 30. Since that time the stock has fallen significantly and even yesterday was still trading in a range of $1 – $1.15. Such trading action is not uncommon for a micro cap stock that is falling on hard times but we now know that CVSL’s financial and operational performance and outlook improved significantly in Q4. SEQUENTIAL quarterly revenue gains of 35% prove that CVSL’s operations are doing quite well and while we do not expect the company to report a GAAP profit yet, we believe the bottom line will also show dramatic improvement in margins and give clear evidence of a company moving much closer to a bottom line profit.

2) The company’s plans to change its name, ticker and cusip number are more than encouraging. Not only does it take a Groove submitted suggestion for flushing out the naked short position, it goes a step or two further and represents a very serious company commitment to eradicating such illegal activity. The “prescription” that was mentioned in a previous post appears to be under way as of noon yesterday and we are confident that it represents only the opening salvo in what will be an ongoing series of actions taken by management to require trading in its shares to be executed within the allowable regulatory structure.  Thus, yesterday’s announcement not only confirms that the company believes the naked short position still remains outstanding, it makes it unequivocally clear that they are moving forward with the “prescription” for curing such ills.

Groove participants who bought CVSL shares on our original recommendation in June of last year should consider doubling down as soon as possible. That buy rec came at a time when the company was about to report just over $50m in revenue for the first six months of the year and they have grown to produce that in a single quarter just six months later. The eye opening growth and the many significant questions facing this management team (and even the model itself) that have been answered since our original report make CVSL worth substantially more than it was, arguably even a multiple of the value it held then. We believe that the buyers who will emerge based solely on the increasingly remarkable value proposition that CVSL shares represent will cause the shares to move substantially higher over the coming weeks and months. And with Groove participants already owning over 15% of the public float, this move higher may be accelerated and exacerbated by a DTC inspired buyer of at least 2 million shares working against a hard deadline.

Entry filed under: micro cap, micro cap short squeeze, short squeeze, small cap, small cap stocks, Uncategorized. Tags: , , , , , , , .

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