To PALM or not to PALM, prepare the straight jackets......
It's been no secret that Palm has been on my short list of potential Bankruptcy candidates for over a year. Fan club loyalty will not save a company that is a one trick pony and always a generation behind. The ride up from a $1.50 to $18 caught me off guard, but the drop back down to $4 did not, but I didn't try to invest in it. The fan club is just too intimidating for me, but not for the 45% short interest PALM held on the way down.
HOWEVER, While Bankruptcy is highly overrated.
It will ONLY occur if the investors feel that LOSSES will continue and the investors have sufficient control to force the issue. Investors might be fearful that PALM will eat through the $600 Million they have in Cash. In many cases a company is more valuable to investors alive than dead. In the case of Palm, however, the $600 Million they have in the bank in cash doesn't cover their debt and accounts payable. While it could be "lost' over time, the company's book value is already negative. A $BILLION In Revenue a year is a lot of money, too bad PALM loses $200 Million on that. Other companies may see it as an opportunity.
The news from multiple sources that PALM may be a a buyout candidate generates an arbitrage play. Some would contend that PALM isn't worth as much as they owe, but value is in the eyes of the purchaser. Palm has a broad, if unprofitable, US presense and base. International companies being speculated on can value that in many ways.
Rumors can generate huge share price spikes that fade just as quickly. My take on Palm, since the news was not denied, is that a takeover could be plausible. Leveno, a laptop maker, and HTC, a Taiwanese handset maker, both surfaced this past week. Large investors have accumulated shares at a variety of price ranges, and I see $7-$9 as being an acceptable range for shareholders to be interested, although those with $18 buy prices might feel cheated.
My other play is that there is over a 40% short interest on Palm. What will happen if the price stays even slightly upward pressured by renewed interest in Palm as an arbitrage play, as the short calls come due? Shorts will need to cover.
All in all, arbitrage plays are not for the faint of heart. I'm backing this one with "a few" real life Calls. I don't recommend chasing this one much higher. Only a very small portion of my portfolio are CALLs or PUTS. I don't short outright. I don't PUT/CALL very short range, and I don't do it with the rent money, although I've been known to do it with the Dunkin Doughnuts money.
I believe speculators FAR outnumber investors of late. One can try to profit from, them, or one can be one. It isn't exactly smart investing, but being smart is not something I've ever been accused of.... normally rumors only interest me as possible downthumbs here on CAPS, but this one has me intrigued. Of course we know what Curiosity does to a CAT....
TSIF, The Sky Isn't falling today..... PALM might be....but ......