In recent days, day traders and momentum players have discovered
Celsius Holdings, Inc. (CELH),
and their presence has changed the trading dynamics for what was
once a sleepy little OTC company.
The average volume over the past 10 trading days has surged to
345,609 shares compared to the average over the previous 90 days of
just 67,543 shares a trading session.
We remember when it wasn’t so long ago that the average trading
volume for CELH was around 10,000 shares per day, and oftentimes
there were days when the stock didn’t trade at all.
All of that has now changed with the advent of day traders
looking for a quick buck.
Part of the reason for the price trajectory of CELH is the
increase in demand for the shares, but the other, more important,
factor that is coming in to play is the lack of adequate supply due
to the low number of shares in the public float.
A recent SEC filing by the
company late Friday afternoon indicates that the shares
purchased by a high profile investor group fall under Rule 506(b) of SEC Regulation D.
Purchasers of securities offered pursuant to Rule 506
receive “restricted" securities, meaning
that the securities cannot be sold for at least a year without
registering them.
While we cannot say for certain, if the 5,000,000 shares issued upon
conversion of the former CDS convertible note, which was part
of the transaction are also restricted, we would question why any
securities from this private transaction would be allowed to be
freely-traded.
Taking into consideration the above-mentioned covenants
regarding the new shares, let's discuss those shares that are in
the public float and are freely-traded.
Prior to the recent transaction with
new investors, there were approximately 20.5 million shares
issued and outstanding, of which Carl DeSantis and affiliate
companies owned roughly 52%. This would indicate a public float of
somewhere in the 9.0+ million share range after accounting for
shares which may be held for various employee-related benefit
plans.
There are a number of investors that we personally know of, who
hold substantial long positions in CELH stock. We introduced many
of them to Celsius over the years. While some of these shares may
have been sold recently, we are aware that a fair number of these
shares are being held for long-term investment purposes.
As a result, the actual public float numbers are likely even
less than the share number indicated by reading the company’s public filings.
We bring this to investor’s attention for a couple of reasons.
We have often pointed out in many of our articles published on the
Seeking Alpha web site that stocks with limited liquidity
carry greater risks than stocks with a much greater number of
freely-traded shares available in the public float.
Not only does a low number of shares in the public float mean
more volatility in the underlying price of the shares, but it also
increases the probability of producing both buying and selling
panics where investors can suffer quick losses. Investors need
to exercise extreme caution when investing in these types of
securities, and understand the inherent risks, as it is very easy
to get whipsawed.
A recent example of this has been
Voltari Corporation (VLTC) . The stock, also with a
very low number of shares in the public float, saw the price of
those shares go from 0.88 cents to $21.75 in just 16 trading days.
It closed yesterday at $10.45.
The timing of the run-up in the share price of CELH comes at a time
when the company is expected to release its financial numbers for
the first quarter of 2015. A report is due out no later than May
15th.
If the results for the first quarter of 2015 show continuing
progress in domestic sales (revenues up 71% in
Q4), and in the health & fitness channel (revenues up 212% in
Q4), and the company reports another
profitable quarter, the stock could experience another strong
leg up in price.
The company is wasting no time in engaging with consumers in the
Chinese market. Over the weekend the company’s web site was updated
to include information about the Celsius brand in both Mandarin and Cantonese, the two most widely-spoken languages
in China.
Distribution in China is expected to ramp up quickly given the fact
that billionaire Asian investor Li Ka-Shing through his Horizon Ventures holdings
gives Celsius access to The A.S. Watson Group, the largest health and
beauty retail group in Hong Kong, with over 11,000 stores in 33
markets worldwide serving over 27 million customers per week.
The group operates the world's largest portfolio of retail
formats, retail brands and has the largest geographical presence,
and the company is majority owned by multinational conglomerate
Hutchison Whampoa.
According to FINRA Regulation SHO
figures, Market Makers have been shorting CELH stock at various
levels on the way up. Friday’s numbers show a total of 295,561
shares shorted on trading volume of 711,069.
In contrast, the public has not been shorting Celsius shares, as
indicated by some web sites that make public short
sale figures available. Remember that, in many cases, these
numbers do not reflect the current status, but merely give a
snapshot in time, as of a specific date.
We urge you to use this data cautiously and selectively when making
investment decisions based on short sale numbers.
If, at some point, short-sellers are forced to cover, further
adding to the demand for the limited number of CELH shares
available, it could trigger a buying panic by the
shorts.
Those investors who decide to hold-on tight to their CELH stock, or
keep their holdings in a Type 1 Cash account with their broker
(thus making the shares ineligible to borrow) could force HTB
(Hard-to-Borrow) stock to become the catalyst for a classic
short squeeze.
Such events typically lead to a short-term "blow-off" trading
top. We'll just have to wait and see how things play out, but it’s
always good to know the potential outcomes under various scenarios,
and be prepared for anything. Good traders plan their trades and
trade their plan.
Irrespective of whether or not a short squeeze develops in CELH,
the next few weeks should prove to be very interesting times for
shareholders of Celsius Holdings, Inc.
This is not a recommendation, or a solicitation to
purchase shares of Celsius Holdings, Inc. ($CELH). Be sure to
read our complete disclaimer at www.altitradepartners.com, The opinions
expressed herein are those of Altitrade Partners, and its
principals, and should not be used as the basis for any decision to
buy or sell securities. All investing involves risk. Do
not rely solely on the opinions of others in making investment
decisions. Please perform your own due diligence and invest
responsibly. Altitrade Partners makes this material available
for informational purposes only. You should not follow
our trading & investment strategies, as they are subject to
change without notice.