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When Will Axion See The End Of The Flipping? 78 comments
It's one of the most common questions I see in the Axion Concentrators and one of the most fervently debated topics. Everybody has an opinion, if not a bit of an obsession. While some seem to believe the flipping can continue for an indefinite period of time, experience tells me the end is closer than most Axion shareholders realize.
This is one of those fuzzy areas where there aren't any clear answers because we don't have enough data, but history can provide some pretty good guidance.
2011 was a year of dreadful selling pressure that came from three big holders: Special Situations, the Quercus Trust and the estate of a deceased stockholder. By my count, those three holders sold a combined total of 22.7 million shares in 2011. The total reported trading volume for the year was 77.7 million shares, which means that roughly 38.8 million shares left the hands of willing sellers and entered the hands of willing buyers. So during 2011, about 60% of all selling came from the big three and the other 40% came from small stockholders who bought in the 2009 placement and others who bought shares in the open market and resold them for one reason or another.
In January of this year, total volume was just a hair under 12 million shares, which implies 6 million shares of selling as the price moved from $0.30 to $0.60. Of that total, 622,500 shares came from Quercus, none came from Special Sits and none came from the estate. If we're willing to accept the idea that most investors are reluctant to sell stock for a loss, then the most likely source of supply for the other 5.4 million shares of January selling was the 7.4 million shares that people bought during the second half of Q4 2011 while the price fell from $0.38 to $0.27.
At the beginning of February Axion added 26.9 million shares to the potential supply pool with a registered direct placement at $0.35. Over the course of my career I've represented clients in more comparable transactions than I can count. My clients always tried to place the shares well so that they wouldn't flow back into the market quickly. They always failed to some extent and in the typical deal the market had to absorb somewhere between 20% and 30% of the new shares within the first couple months after the offering. I've never been involved in a transaction where more than 30% of the new shares flowed back into the market. It does happen from time to time, but only in deals that are structured to flip 100% of the shares back into the market and those deals always go to one or two buyers.
Based on prior experience, I think it's reasonable to assume that somewhere between 5.4 million and 8 million of the February shares were likely to flow back into the market in the short term. Anything outside of that range, either on the high side or the low side, would be very surprising to me.
Since the registered direct offering was announced on February 1st, a total of 21.5 million shares have traded. That works out to 10.7 million shares of selling and 10.7 million shares of buying. Using last year's ratio of 60% from direct purchasers and 40% from normal trading, I'd peg the number of shares that have flowed back into the market from direct purchasers since February 1st at 6.4 million. Quercus sold 888,500 shares during that period, which suggests that the February purchasers have sold about 5.5 million shares, or 21% of the total number of shares sold in the February offering.
We do not and cannot know how good a job the placement agents did in putting the February offering into strong hands. Based on my experience with comparable deals, I'd expect a flow back of 20% to 30% of the new shares. We've already passed the 20% level and for the last several weeks the market bias has been toward the high side of the Bollinger Bands. We've also seen the spread between the 10-day and 200-day VWMA narrow to $0.0221.
If the placement agents did a cruddy job at keeping the flippers out of the February placement we might see another 2.4 million shares flow into the market, which would require a total trading volume of about 8 million shares of total trading volume to absorb. If the placement agents did a more skillful job with the February placement, the willing sellers could run out of stock at any time.
At the end of January Axion was running on fumes and had a market capitalization of $52.7 million. Today, with about $8 million more liquidity and its first order in hand from Norfolk Southern, Axion has a market capitalization of $48.3 million, a 10% discount from late January levels. I know that everybody likes a bargain, but with the 10-, 20-, 50-, 100- and 200-day VWMA ranging from $0.42 to $0.45 I don't see the price declining from current levels. I would not want to be sitting on the fence or bottom fishing when the last of the willing sellers runs out of stock.
Disclosure: I am long AXPW.OB.
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This post has 78 comments:
I think it's the very nature of investing in very small companies like Axion that trying to time your investment is an ineffective approach. That's because these tiny stocks simply move too quickly. Blink twice and you'll miss most of a run. Way better to get in at a price you think is reasonable and wait it out.
This scenario actually makes things better for us Axionistas that are waiting patiently for the rabbit bump to go to the far end of the Boa,,well, bad analogy.. but I'm sure you get it.
I will call Schwab, and see if they can shed some more light. They have been a great company to work with.
Great article otherwise, and I agree that the selling in this range will evaporate soon. I'm thinking a steady slow climb after .45 is broken, and a run of sorts with any news.
When the market maker buys those shares from another stockholder another X shares appears in volume.
So while there were only X shares that moved from a selling stockholder to a buyer, 2X shares show up in the trading volume.
Of course, you could be right and I could be wrong. But my learning has led me to understand just how many "exceptions to the rule(s)" there are in the POS we know call a "market".
Look at the combinations from the last few days - especially the short sales. And recall that the average daily short sales was ~36% from Nov 11 forward last time I looked. Something has changed as we don't see (visually checked only) that since early February.
5/4 and 5/7 especially suggest anomalies to the prior trends with the buy:sell ratios being what they are.
0501 Vol 0222824, Sht 0008132 03.65% LHC 0.4300 0.4500 0.4301 b:s 1.23:1
0502 Vol 0143270, Sht 0016000 11.17% LHC 0.4300 0.4549 0.4410 b:s 1:1.39
0503 Vol 0181530, Sht 0028500 15.70% LHC 0.4300 0.4400 0.4350 b:s 1:1.04
0504 Vol 0190417, Sht 0008500 04.46% LHC 0.4241 0.4400 0.4241 b:s 2.07:1
0507 Vol 0080830, Sht 0009734 12.04% LHC 0.4110 0.4289 0.4200 b:s 1:4.25
HardToLove
HardToLove
From a legal perspective, the 2009 purchasers had to keep their shares in physical form until they sold them. The February buyers, in comparison, were free to deposit their shares in brokerage accounts immediately.
While the 2009 purchasers were selling, there was always a delay between the transaction date and the delivery date that gave rise to the short sale. With the 2012 purchasers selling, there is no delay between the transaction and the delivery.
As near as I can tell, that difference is the reason short sales were high last year and are low this year.
Didn't BlackRock also sell a million shares a while back?
BTW: Today is probably the first day in memory that I haven't checked in on Axion's price; probably since I was coming home from Honduras, Dec. 23, 2010! That's how confident I am in your analysis. Will I hold out? Probably not.
To me BlackRock ist still an unknown risk factor. If they hold tight, we might be finally on the way to fair valuation soon, which is probably in the 250-300 million range, as has been discussed a couple of times.
If they make any sales that take their holdings below 5%, or roughly 5,750,000 shares, they'll have to file another report on Schedule 13G that that reflects the sale. Until we see a filing, we have to assume they're still in place.
After what happened last year, a lot of us have become to expect the worst, but your theory about Blackrock strategy of selling only a chunk every year sounds very reasonable.
With Gelbaum almost gone and larger sales orders soon to come, I'm hoping that we're finally on the way up.
Blackrock reducing their AXPW stake for what they might consider ground floor opportunities on the fore, e.g. banking, investment houses, REE, real estate, Europe...or just plain cash on the books for other opportunities?
With that in mind, having a certain degree of confidence that AXPW will have that bump up, and overall AXPW will be a profitable venture for Blackrock even after taking some off the table annually?
Investors Dive In - Significant Buying Opportunities Currently Exist
http://bit.ly/Kq9VHh
"Gene talks about what's happening in the market today and how Vultures should be handling this current market sell-off. He says when people are selling their stocks, it's a great time to be buying. As a gold investor, Gene tells us he is willing sell a little gold to invest in junior resource companies because of the significant buying opportunities that currently exist. He says, "that's what you have the gold for; it's to preserve your buying power for times when it really works for you." "
Whatever Blackrock is doing, they are most likely doing it on autopilot.
If I recap the facts correctly, we know they sold 15% somewhere in 2011 and they sold 15% in Q1 2012(?)
So the strategy could be "Sell 15% every first quarter a year", but in the bad case it also could be "Hold for two years, then sell 15% every quarter". Right?
Whatever the gentlemen's understandings were, they would have had to have made sense at four times the magnitude.
I don't believe the possibility you've suggested would have made sense to any of the big investors in December 2009.
It all seems to flow from a paranoid presumption that the other guy knows more and is less disciplined.
This year has been particularly bi-polar for trading volums with January at 12 million, February at 9 million, March at 4 million, April at 7.6 million and May to date at 1.1 million. It's bouncing up and down like a ping-pong ball. Hopefully things will stabilize some after next week's conference call.
I've laid out the scenario that I find most plausible based on my past experience with more transactions than I'd care to count.
I may be wrong, but it's my theory and I'm sticking to it because no alternative explanation meshes with my experience.
There were a couple of bitter pills we had to swallow, but at this time to me this is only about the "when". The NS order to me was a great validation that they really can pull it off.
If more sales and growth happen this year, sooner or later volume has to follow as Axion gains more and more visibility outside of our little circle.
Waaaay back, about four years ago, in one of JP's earliest articles, because I didn't know where else on Seeking Alpha to post other stocks I was interested in, I posted about five non-energy storage related stocks.
One of them was Arena Pharmaceuticals (ARNA). The stock rolled around for four years, and then finally, finally, today it popped 75%.
That innocent and truly naive posting, by the way, contributed in part to my meeting several Seeking Alpha stalwarts like HTL, FocalPoint Analytics, OptionsGirl, Mark Bern (now K202) and others.
Out of that came the Renegades, and eventually QuickChat was created, probably the best "anything about everything" blog on the Internet. From that came other themes created by OptionsGirl, FocalPoint Analytics, Robert Fergusen, and tripleblack's incredible Rare Earth Elements blog series.
And now we have the Axion Power Concentrator series, and all the various "spidering" threads like this one, by JP, bangwhiz's threads and Google website, WDD's blog, articles being written by jakurtz, Futurist, etc., charts and graphs being created, and on and on.
So that's a little history of how all this came to be.
Biotech Arena Pharm took way over four years to get it's fat pill approved by the FDA.
I have a feeling in the not-too-distant future, that us Axionistas will be getting "phat" on Axion shares, despite the bitter pill we all just swallowed of miilions more shares being potentially sold off by BlackRock.
To me, yes I admit, I'm bummed by this development. But I never once thought of selling. The theme of my investment still holds great promise, and though the stock has been set back from the pounding by four different multi-million share holders, the premise, this business model, still has unbelievable upside potential.
It's just going to take a little longer than I had at first expected. That's all...more time and patience are required.
May AXPW do the same in a few years!
I was a skeptic about ARNA last year, based on the FDA's hostility to obesity drugs. But the company did an excellent job of answering the Complete Response Letter, and I became convinced they would be the first to get approval as their share price was bottoming out this year, and decided it was a good bet.
They still need official FDA blessing at the PDUFA meeting next month. But after the AdComm vote of 18-4 in favor yesterday, that will surely occur. I am sitting on a 175% gain now, and expect it to only get better as we approach that date.
Thanks for providing this information.
Yesterday, 10k sat at .4279, 1/100th below the ask all day. Someone bought it this morning at 10pm. 8.5 hours it took for someone to feel comfortable buying 10k @ .4279 -- within 1 minute another 10k at .4279 took its place.
Unfortunately, anyone watching the stock closely really has no incentive to buy other than its a darned good price to buy at if your confident in their business developments.
Until their is some evidence supply has run out and that 10k 1/100th below the ask stops appearing all we have is the same situation we have had for two years, an insatiable amount of supply flowing into the market and no good news going unpunished.
I believe Axion will see the end of supply someday soon, but I also believed that 6 months ago. I have no problem with their business prospects, I do have problems with their stock performance. Its like a little boy trying to stand up and each time he does he gets whacked over the head, sooner or later he'll stop trying to stand up.
Then people who were waiting for evidence end up chasing the price.
Let me hasten to add, that as like HTL, I do certainly admire their skills, and would not begrudge them their gains, being just and fairly won. My main question is just could these types be greater in number and more of a factor than we've otherwise previously thought?
If you take yesterday as an example, the average trade price was $.4217 and the total value of all trades was $33.354. If you take all sales below the average price and calculate a spread, you get to a total of 163.27 for the day. You get to the same figure if you do the same calculation on the upside. With a total trading spread of $326.54 for the day and market makers who insist on earning a living, there really isn't anything left for day traders.
In my experience if a game's not worth playing people don't play it.
So if that notion truly is justifiably dismissed, then it really does mean that the bulk of shares are in fact flowing from weaker to stronger hands. And such a thing must end at some point. Repeat, it will end at some point, not an option. Ok, hmm. That's in my pipe now. Will commence to smoking. ;)
I like the premise of your article and obviously the conclusion will keep my eyes on the peeling paint. But the above quote is an interesting assumption. Why would I assume that this years selling percentage is the same as last years nightmare scenario?
January was a month that didn't have much in the way of identifiable selling pressure and the price doubled. As soon as the direct placement was closed the selling pressure ramped and the price got pushed back down despite the placement's elimination of the financing risks.
The only logical explanation I can find is that a portion of the February offering ended up with short-term holders who use a 20% up and out strategy and hope to turn their money several times a year. I've witnessed similar patterns with other clients for years where 20% to 30% of the new shares find their way into the market within a few months and the rest end up with longer-term investors.
The NS news only served to provide a volume spike needed by those who want to exit. They don't seem keen on getting out below 40c but any attempt to build upwards on news will be squashed for the foreseeable future. It seems that Axion will really have to build a head of steam sales wise before the supply side weakens. But IF TGs prediction of 300% revenue growth across 2011/12/13 holds true then we should be OK. Others seem disinclined to believe him.
The idea that you can predict the behavior of stockholders you don't know anything about is patently absurd.
Based on 33 years of experience in the securities business and more public and private financing transactions than I'd care to count I think we may see another couple million shares of selling.
Unless you can point to comparable experience you should probably listen and learn instead of pontificating from a position of ignorance.
With all respect, your supply 'puddle' is the most enduringly tenacious body of water I have ever encountered.
Its persistence is certainly frustrating to us all, and I suspect this accounts for the tone of your response.
I don't need to defend John as he does a great job of that.
But before you state he has an attitude maybe you should reread what you wrote:
"They don't seem keen on getting out below 40c but any attempt to build upwards on news will be squashed for the foreseeable future. "
You are predicting the future actions of unknown shareholders. An impossible task. John is predicting a "supply of shares" of 2 Million. A mathematical prediction based on the facts of 2011 and his experience.
If you can't see the difference you simply are being dishonest with yourself.
Worrying about when it will increase is a waste of time. It will rise when it rises, until then go read a book, kill aliens in a video game, chase women, whatever. It will be more productive and you will sleep better. What I would really like to do is go fishing, but alas, I am stuck with caring for my mother so I read books.
sharp piercing stare ??
(darn, I must have been thinking birds are like dogs...)
(inside joke, for a time I was alternating a picture of my dog and myself, both with reindeer ears. And like most dogs & owners, there is a resemblance )
unless it matches your eyes ......
But its days are surely numbered, whether near 1 score or nearer 10, in time it too will shrink to nothing but a dry dusting of salt, and then like a memory, it'll be gone--- forever merely blowin' in the wind.
I will continue to buy when cash allows. For me its an opportunity to improve my average purchase price.
I suspect that if Europe wasn't in near meltdown that there would be fewer AXPW sellers looking to accumulate cash.
If there haden't been this disclosure most of us would have continued to carry on as normal.
Just because they have reduced their holding means nothing to us other than there are a few more shares available to buy at a good price. Look at the recent volumes. We are not seeing millions of shares on offer and/or being sold. The volume is way down and the share price is steady. What is the problem?
Like others have said, get out of the stock if you don't like the price.
It is always good to sit back and review ones position in light of changing events but to me the moderate selling by Blackrock is more of a non event especially in light of the NS announcement.
But more so because the Blackrock selling was done in advance of the NS announcement.
Granted that in the great scheme of things the AXPW holding that belongs to Blackrock is indeed tiny. And yes who knows if there is a single analyst within Blackrock that has a clue as to what we expect will be a long and steady supply of product to NS and hopefully all others in the rail space shortly. But we have insight and we have knowledge of other applications for the PbC that few others have. Not "insider knowledge" but we are informed by the hard work and diligence of our group.
I keep buying.
Yes. Perfectly normal. But that's no reason to suggest that we all ignore it.
Some will always be shaken - we shouldn't apply the remedy to the healthy.
MHO,
HardToLove
I was not particularly upset when first I saw the figures, nor am I now, and for a while I was bemused by that and wondering why I was not worrying too much...
So here's what passes for logic in my swiss cheese brain, at least where figuring out my own preferences are concerned:
I would rather they sell off their share NOW, when the result is a stagnant but cheap level of availability for the Axionista faithful, rather than do so when the sales (and the headline, "Blackrock sells millions of shares of Axion") could do real damage, moving the stock not fractions of a cent but dollars.
Perhaps this is not clear thinking, but it is the way I view the situation (and that would cover just about any reason why they might be selling, frankly).
them RR's know how check stuff out, in all kinds of weather,
road bumps & switch yard hand goofs. yep
so I bought some, just to spice my interest in the coming
earnin's reeport, yup. I susspect that there NS RR jus' might
be buyin' some more batts & if they do, well them other RR's
be right behind. probbly good for the stock. yep, not much to lose
& a lot to gain. let's watch & see.....
$50 mil. / 113,211,091 shares outstanding as of 3/1/12 = $ 0.44165 per share.
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