$VSI tumbled some 35% yesterday after its earnings report. On the surface the numbers were uglier than expected. Terrible. I see some talking bankruptcy in the near future. Who knows, anything is possible. What I see is an opportunity.
The stock price for $VSI is like a tomato left out in the sun. It is rotting and wrinkled. From $65 to $6 over the course of the last three years.
What was once a great buy at $65 has turned into the short of the century at $6. Amazing how this market works. The no brainer short is a stock that has dropped 95% over 3 years. And perhaps the shorts, will be right about the last $6 of downside. The stock is down $60 whats another $6?
While the selling was hot and heavy, and the stock down 35% , I entered September $7.50 calls yesterday for $.15.
Perhaps $VSI will drop another 20% down to $5. Perhaps it will go to zero. Perhaps nuclear war will break out and none of this will matter. Nothing is ever certain. However what is certain is that $VSI's tangible net value was higher at yesterdays close than the price investors were willing to pay for the stock.
Technically if $VSI closed its doors today and liquidated everything, and paid backs its debt, shareholders would get at least $6.40. Yet investors were willing to sell the stock almost 10% lower than that.
Perhaps they are right. When trading a stock, price action is really all that matters and right now investors are selling the stock at a discount. Maybe that rotting tomato is rotten to the core. No seeds to be procured for the next harvest.
On the surface, after charges $VSI posted an over $6 per share loss. But this was due to one time charges. Take those away and by some miracle $VSI actually posted a $.23 per share profit. A profit? Impossible for a company that is supposed to go bankrupt to post a profit.
This is not a company saddled withe debt. Interest payments remain low. And on the bright side, this quarters massive loss is actually a tax write off down the road.
And with the stock at record lows, the company remains authorized to buy back over $100 million of its own stock. What better time to reward long term shareholders than to reduce the outstanding shares at a cost that has never been lower.
If $VSI utilized its entire authorized share buy back program at the current market price it could reduce its outstanding shares by some 70%.
$VSI is in a position to acquire a lot of its shares at record lows while it works on turning things around.
I like the risk/reward here for a recovery into the early fall.