Quote Originally Posted by davidallison@shaw.ca View Post
Hi Mike,

I’d like to thank you for all your great posts. As one who lurks in the background, I’m slowly starting to educate myself on CANSLIM method.

I was wondering if you might give an update on your thoughts on KORS, given the Friday announcement.
“The company said ‘certain shareholders’ had reached an agreement with the lead underwriters of the IPO to waive lock-up restrictions with respect to the shares. The shareholders filed to sell 25 million shares with an option to sell another 3.75 million. Shares dipped slightly in after hours trading, down 0.8% to $46.72. The original IPO sold 54.28 million shares, though the company has 191 million shares outstanding in total.”

It sure seems like a huge filing and represents over 1.2 billion at $50 per share! I’m not sure when the shares would come to market, but given your experience, do you think short sellers will jump on board Monday pushing this significantly down? The fact they want he lock-up restrictions waived does not instil much confidence. I noticed the short interest had increased 65% from Feb. 15th to Feb. 29th for a total of about 1.4 million shares. This was prior to the break out of the tight flag that was formed and doesn’t seem like an overly large short interest or that it might have contributed significantly to the break out. In my opinion, given the average daily volume, it’s going to take quite some time to get this out of the system, and at the very least cause the stock to base for a few weeks.

Your thoughts would be greatly appreciated. Full disclosure, I do have a small position. Thanks again for everything you do on this forum.

Dave
Dave,

You have stated the situation well. I have only run into a situation once before when lock up provisions were changed. Lockup provisions are some kind of guarantee that insider shares will not flood the market for usually 180days after the IPO has been floated. Secondary offerings happen from time to time, 25 million shares does seem to be substantial. Normally secondary offering events are just a bump in the road, being a secondary offering means that share holder equity will not be diluted. INVN had a similar secondary offering with modified lockup period. The size of their offering was similar in percentage of float terms. In the INVN case we saw a pullback over a couple of weeks with support coming in at the 50-day. KORS is flying 43% above the 50-day which was similar to the height above the 50-day that INVN was pre announcement. INVN is much less liquid and therefore more volatile. I would hope that KORS holds the recent gap up lows around $40 if not higher in the pattern. I guess where the price goes depends on the terms of the secondary offering.

As all "news", we trade the reaction to the news and not the news itself.