Skystar on the NASDAQ with Big EPS and Low Float

I have been buying and blogging Skystar (SKBI) (was SKBO.OB prior to Friday) since the $11 range. As expected, the Company moved to the NASDAQ this last Friday and closed at $20 per share. This week I expect the company to complete a known share sale as part of the move to NASDAQ and to fund amazing expansion capabilities for its business.

Updated Float Analysis: Skystar has approximately 1.869m shares outstanding pre-secondary. On page 38 of the most recent S-1 , it states that between management and two funds there are approximately 1.5m shares held. On page 7 it states management is locked up for six months from the date of the secondary. That would put SKBI at a float of approximately 369k pre-secondary if my calculations are correct. When the 1.4m shares are sold this week, I would guess that not many are going to flip this stock for $5-$10 dollars with this EPS potential. Depending on how many hold these shares, SKBI could have a float range of approximately 369k to 1.769k (Mid-point is 1.1m).

Lastly, according to this article out last week, SKBI is on the naked short list (have not confirmed) .

Updated EPS Analysis: In 2008 (see the presentation and the S-1 it did $3.07 EPS on the shares outstanding), Skystar had $5.6m of net income that included $1.1m of non-recurring expenses, or $6.7m adjusted net income.

Skystar had approximately 1.869 shares at the beginning of FY2009. It will sell 1.4m shares this week, however those shares will only be outstanding approximately six months of FY2009. So fully diluted weighted average shares for FY2009 should be approximately 2.569 (1.869 + half of 1.4m).

If I divide the FY 2008 adjusted net income by the new post-IPO share count of approximately 2.569m, I get EPS of $2.61. Skystar would only have to grow net income by approximately 15% in 2009 to have EPS of $3. However, in the first quarter of 2009, net income was up 72% YOY! It is easy for me to see how this Company could potentially do over $3 EPS for FY2009. Lastly, as discussed in my original blog post, in FY2010 expansion sales give the potential for approximately another $1 EPS. So I also see that potential for this Company to do over $4 EPS in FY2010.

The expected price range of the share sale this week is $9-$11 (I would guess the high end and personally question if it could get more)? The stock could either pullback creating what I would consider a nice opportunity to buy or gap up as it is already on the NASDAQ now.

One thing is for certain, considering the P/E of approximately 24 that recent IPO DGW is trading at as of last week, combined with my calculations of $3-$4 EPS potential and the ultra low float of SKBI, it is easy for me to be very excited for what SKBI potentially could do.

Disclosure: I am long SKBI with an average of approximately the $12 range.

Comments

[DaveyD:]

Great article! On another note, Access Pharmaceuticals put out a press release today regarding their global launch of their FDA approved product MuGard in 4 of 27 countries in Europe. A stock to check out for sure.

Jun 29 03:09 PM