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Is DAVIDsTEA Keeping Its Own Stock Price Down?

|About: DAVIDs TEA (DTEA)

Summary

Is DTEA company's management actively keeping its stock price down?

Founder/CEO has expressed desire to take company private;

Is cannabis part of DTEA's turnaround plan - after taking it private?

A speculative hypothesis to help understand what drives DTEA’s stock price.

DAVIDsTEA [DTEA] management recently issued two similar brief press releases pertaining to its stock's trading activity (on September 21st and October 2nd).

'MONTREAL, Sept. 21, 2018 (GLOBE NEWSWIRE) -- In light of the recent significant increase in the price of its shares and in trading volume, DAVIDsTEA Inc. (Nasdaq: DTEA) wishes to confirm that it is not aware of any corporate development or other reason for the recent market activity.'

This kind of commenting by a company's management on its stock price is highly unusual. Especially when it brings your stock value down. Actively. Repetitively.

The reason DAVIDsTEA stock rallied had to do with a current rush into cannabis-related stocks. And the jump in DAVIDsTEA stock was perfectly normal in the speculative price discovery process that moves stock prices.

My take is that DAVIDsTEA's management had no business meddling in that process. Or they should have given more context for their actions. Regardless if the speculation that drove the stock to rally had any basis in reality or not. And it *has* a basis in reality, in the sense that it creates an option value embedded in the stock price.

And the company's press releases killed that option value. With it, it has sent the message that it will keep killing that value. Why would a company, especially one that is losing money and nosediving, do that? I'll come back to that in a bit.

The option value I'm talking about is the company's potential to branch out into cannabis-related products, like teas infused with CBD oil, for instance. And that notion is not as far fetched as it may seem. Why?

  1. The company has been approached by six cannabis producers over the summer.

2. On August 24th, the company issued a press release regarding the appointment of two independent directors. One of them is Anne Darche, who also serves as director in the board of 48North Cannabis Corp., ' a company listed on the TSX Venture Exchange whose wholly-owned subsidiary is a licensed producer of medical cannabis in Canada. '

So why would the company be so aggressive in its attempt to squelch any upside speculation in a stock that has lost 80% of its value in the three years since it went public?

The founder, major shareholder and current CEO has expressed the desire to take the company private.

And recent activities, including a board overhaul, and executive departures, seem to echo that that’s the real reason for the ‘nothing to see here’ press releases.

Add to that a major shareholder recently [after the press release on September 21st] disposing of its stake in the company. [Segal is DTEA's CEO, founder and major shareholder]:

‘TDM was one of three large shareholders that failed in a fight against Segal’s slate of director nominees, questioned Segal’s turnaround plan and accused him of trying to acquire the company without paying a premium.’

And here comes my informed speculative take on all of this:

DTEA’s stock price is actively being suppressed, because the founder/CEO/major shareholder wants to take the company private.

But why would you take a money-bleeding company private? Perhaps because you've already setup the turnaround - possibly involving cannabis - for after you’ve taken the company private. Maybe. If that would the case, then technically and legally they may still be on the right, though rickety,  side of history. But in the spirit of things...I doubt it. 

Disclosure: I am/we are long DTEA.