PFIE - Here's what's going on:

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PFIE - Here’s what’s going on:

They are offering 6.0 million shares, 4.5 million by the company and 1.5 million by stockholders. With a standard over allotment of 15% or 900,000 shares. The extra 900,000 shares will ALL come from stockholders, and will be non-dilutive. The Company expects to receive net proceeds of approximately $16,430,000 after deducting underwriting discounts and commissions.

Why are they selling it so cheap? - They are a tiny company and they are getting ripped off by the underwriters of the sale. They have no pull so the underwriters can force them to sell cheap if they want to raise cash.

Why are the insiders selling some of their stock? - Because they own almost all of it, and want to diversify, or buy a house, or send their kids to college, or buy a Tesla.

Why do the underwriters force them to sell cheap? - First so they can buy a part of the shares cheap for themselves. Second so they can give their own favorite clients a bargain, and keep them happy.

Why is the price down today? - The underwriters’ clients, who are promised cheap shares, don’t know beans about PFIE and don’t care. Joe Blow, who is promised 20,000 shares tomorrow at $4.00, sees PFIE at $4.60, or $4.50, or whatever, and sells his 20,000 shares short at that price, knowing that he’ll cover his short tomorrow with the shares he gets at $4.00. So he makes a fast profit of 50 or 60 cents in one day. Probably EVERY ONE of the underwriters’ clients is doing that, which is why the volume is so high.

Why then, doesn’t the price go right down to $4.01 or $4.02, with all these guys selling their shares short? I see that it’s at $4.25. - Because lots of intelligent investors like you and me, seeing what’s going on, and knowing that $4.25 is a bargain price for PFIE, and that in a week or less the price should be way back up, are buying at $4.25.

Hope that helps.

Saul

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Bought today

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Thanks for the elucidation, Saul.

I started a small position. I don’t usually start small, so this is exciting for me!

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Saul,

I love your insight on the likely workings of this sale. I don’t know how long these things take to set up and get out to the public but I will point out that only 3 weeks back the price was around $4. That might also be a large factor.

I pulled the following out of a sales pitch e-mail for one of Louis Navallier’s “Emerging Growth” investor advisory. While I don’t subscribe to any of his newsletters occasionally I try to figure out what company he’s talking about. I actually bought a couple of times, ACT and SNTS, and did pretty well. This one didn’t take any digging to figure out what company it likely is.

5 Ways to Tap America’s Energy Boom

And then there’s American Energy Boom Winner #5.

This oilfield technology company has a product that’s invaluable to oil and gas drillers. In fact, this product saves its customers money, manpower and lives. Yes, lives!

OK, first understand this: All oil and gas undergo initial production processes at the drill site, and this requires a burner, which provides heat to ensure the process functions properly.

Without our company’s product, a worker must manually reignite the burner any time it’s extinguished. This requires a fuel-soaked rag that’s tied to a stick. Talk about dangerous!

Not only does our company’s product detect a distinguished flame and reignite it, it also manages temperature, monitors and controls the burner and has emergency shutdowns.

As a result, this company’s products are in hot demand—which is significantly boosting its bottom line.
Sales are projected to surge 104% in full-year 2014, vs. full-year 2013.

Investors are just starting to catch on to this company’s incredible potential, driving shares 47% higher in the past three months alone.

And you can grab the next 50% jump higher.

Steve
Also, I did buy more today

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Thanks Steve, I bought a bunch today, averaging about $4.31. It was at $4.25 when I wrote that description, but it’s back to $4.35 now. There’s an awful lot of buying to absorb several million shares dumped by clients of the underwriter in a single day. This is a little company.

Saul

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Saul,

This is supposed to close on July 2nd. It seems like with nearly 4 million shares sold today and then another 4 million priced at $4 coming on July 2nd that a $4.25 limit order aught to fill. Maybe there is enough demand for the shares that $4.50 is as good as it is going to get from here on out? If so, that is a real testament to what people think about the company.

Thanks,
Tdonb

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Let’s hope we find that we are all correct with our assessment on PFIE.
Like a proverbial gaggle of chickens on a pile of JuneBugs!
I have a decent pile I gathered and devoured around $4.40. I expect they will digest well and make us all plump and happy.
KLVanLiew

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Why is the price down today? - The underwriters’ clients, who are promised cheap shares, don’t know beans about PFIE and don’t care. Joe Blow, who is promised 20,000 shares tomorrow at $4.00, sees PFIE at $4.60, or $4.50, or whatever, and sells his 20,000 shares short at that price, knowing that he’ll cover his short tomorrow with the shares he gets at $4.00. So he makes a fast profit of 50 or 60 cents in one day. Probably EVERY ONE of the underwriters’ clients is doing that, which is why the volume is so high.

Saul,
I knew I was in the right place. Although I wasn’t in panic mode, this sure helped me feel better.

How do you know so much? Never mind, just keep it coming.
An ever grateful,
Mykie

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who is promised 20,000 shares tomorrow at $4.00, sees PFIE at $4.60, or $4.50, or whatever, and sells his 20,000 shares short at that price, knowing that he’ll cover his short tomorrow with the shares he gets at $4.00. So he makes a fast profit of 50 or 60 cents in one day. Probably EVERY ONE of the underwriters’ clients is doing that, which is why the volume is so high.

So Saul if they are selling them short at 4.00 how does that work? Do they ave to sell the shares at $4.00? I have no clue on shorting or options.

Andy

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Andy

I am not Saul, but here is how the basics of shorting works. The seller borrows shares from the brokerage to sell. In this case we will call the price $4.50 that he sells his borrowed shares at. Now he has been assured by the underwriter that he can buy shares at $4.00. So when he buys those shares, he pays them back to the brokerage. A quick little $.50/share profit.

I hope that makes sense to you. Anyone else please feel free to chime in to better explain or correct.

Bill

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So Saul if they are selling them short at 4.00 how does that work? Do they ave to sell the shares at $4.00? I have no clue on shorting or options.

Hi Andy,

I can’t answer the short selling question (a good one) but have a bit more mystery to add.

IB, (the broker I use) has a restriction on shorting PFIE today and through the end of June 30. I wonder if other brokers also do this or is this an action dictated by the exchange?
Mykie

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Thanks Bill so if he sells them at $4.50 and the shares go down to $4.00 does he lose money? I thought when you shorted you were hoping for the shares to keep going down. Also if the shares go up lets say to $5.00 I thought the shorts lost money. It looks like I need to do some reading on this although I never plan on shorting stocks it might give me some great insight on the market.

Andy

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Doubled my position today, thanks for the write up Saul

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Hi Andy,

Thanks Bill so if he sells them at $4.50 and the shares go down to $4.00 does he lose money?

No, he makes $0.50 per share. Let’s use 1000 shares as an example.

He borrowed, and then sold in the open market, 1000 shares at $4.50, so he received $4500 (ignoring commissions).

Then a couple days later he buys 1000 shares at $4.00, costing $4,000, and returns the shares to the lender. His profit is $4500 - $4000 = $500 (again, ignoring commissions).

Since the buyer is guaranteed a purchase at $4.00 in this case, there’s basically no risk in this particular situation (if the stock went up, it’d just be opportunity cost). Normally, of course, short-sellers don’t have any guarantee like that and are hoping the stock will go down in price so they can buy back the borrowed shares on the open market for less than they received selling them on the open market. If the price goes up, they’ll have to buy back for more than they received, and will thus lose money.

Neil

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So a client sold the stock short at $4.50 and then covers with the assigned shares at the offering price of $4, the client made $.5 profit per share - 12.5%. That is a decent profit for a quick flip. But think about this - the client has just lost the opportunity for future capital gains on the stock.

Unless he does one of the two:

  1. Buy back the shares after the offering - in this case the price may have gone up and his 12.5% profit may shrink or totally evaporate or
  2. Buy back before the offering. Since there may be a lot people doing the same, the selling pressure will cause the price to drop a lot, as we saw this morning PFIE dropped to a low of $4.15. So he can buy back at $4.15 and the profit is $.35 per share. The problem with this is that if a lot people start to buy at $4.15, the price will rise rather fast and he may or may not have the opportunity to fill the order at $4.15 and his profit may get thinner - there is transaction feet, too.

So it is quite dangerous to do so unless the client never cared to hold the stock to begin with and the 12.5% gain is all he wanted.

Does this make sense?

-M

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Thanks Neil so basically these guys are doing an arbitrage deal and just going for the 50 to 60 cents they can make off of it. That clears alot of it up. Thanks.

Andy

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Another important thing about shorting- people work against shorts by moving shares between cash and margin accounts. For example, I have 1000 shares of say Z in a margin account at Fidelity, a margin agreement means that my shares can be lent out to short sellers. If I see that there is a high short interest in Z I might move my shares to a cash account where they cannot be lent. And I suggest others do the same. People short cannot maintain their short positions without an available supply of borrowed shares. They bid up to get shares to close their short position. My shares go up and up… Then I sell.

In reality MY holdings do not matter much. But billionaire Bill Ackman advertised his short position in Herbalife and other billionaires managed to create a short squeeze and really made life difficult for him. Until Ackman got the Feds to finally look at the pyramid scheme and the shares fell. It was high drama for a while and it goes on often, but not so publicly.

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Thanks Bill so if he sells them at $4.50 and the shares go down to $4.00 does he lose money? I thought when you shorted you were hoping for the shares to keep going down. Also if the shares go up lets say to $5.00 I thought the shorts lost money.

Andy, Shorts try to do the same thing as we do. They try to buy low and sell high. The difference is that we buy first and sell later. They sell first (at what they hope is a high price) and hope to buy back later at a lower price. With an offering like this, it’s a sure thing, since they know they can buy back at $4.00 because they’ve been promised the shares at that price. So they can sell at $4.40 and KNOW they will make 40 cents (buy at $4.00, sell at $4.40).

Saul

For FAQ’s and Knowledgebase
for this board, please
go to Post #2176

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1.5 million by stockholders

Why are the insiders selling some of their stock? - Because they own almost all of it, and want to diversify,

Why would the insiders not sell in the open market and make a 12% profit over the offered price of $4.00?

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Because they didn’t realize how much demand there was, and worried that putting out 1.5 million shares for sale would depress the price way down. They had never tried selling any. This is a little company.

Saul

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