Kodak Stock is Up Over 1,400% in Two Days. Does It Make Sense?
30 July 2020
Eastman Kodak Company (NYSE: KODK) opened at $2.15 (Monday) on July 27, 2020, and closed at $33.20 (Wednesday) by 29 July 2020. That is a 1,444.19% increase over a two day period.
In this article, I am going to give you some background on the Kodak company, the reason for the rally as well as my thoughts on whether it made sense or not. I will conclude with some lessons that I think we can apply to this kind of situation.
Background on The Eastman Kodak Company
Kodak is a United States based company that is well known for its photography business.
They operate several business segments which include Print Systems, Enterprise Inkjet Systems, Kodak Software, Brand, Film and Imaging, Advanced Materials and 3D Printing Technology, and Eastman Business Park.
Kodak print systems segment consists of the majority of their revenue and it offers services such as commercial printing and publishing for books.
Most of its revenue comes from overseas markets.
The Reason for Kodak’s Recent Rally
The reason for Kodak’s recent rally has got nothing to do with it’s printing or it’s film business segment.
Kodak basically won a loan of $765 million by the US government (under the Defense Production Act) to make ingredients for generic coronavirus medicines.
My Thoughts on Whether Kodak Rally Made Sense
The US government’s intention is to engage Kodak for the production of these critical ingredients that are short in supply. This is also a part of the American government’s effort to reduce reliance on overseas suppliers and instead, make these ingredients in the US itself.
The volume of stocks traded on the company went up over twenty times its normal range.
Does the rally make sense, fundamental wise?
Think about it. Kodak market capitalization is about $100 million before the two-day surge. It is now about $1.5 billion. That is an increase of about $1.4 billion plus-minus.
Remember that the $765 million given under the Defence Production Act is a loan. Kodak has to pay it back.
Even if the $765 million is a pure cash gift given by the US government, the $1.4 billion increase in the market capitalization is twice that value.
So to me, logically speaking, it does not make sense.
Kodak loan terms must be repaid over 25 years period and its terms are similar to a commercial loan.
Did you know that Kodak has filed for bankruptcy before in 2012? Despite inventing the digital camera back in 1975, the company has failed to innovate and grow in the face of competition.
Peter Navarro, the White House trade adviser’s office is currently also considering around 30 firms for funding to fight the virus and protect the public health. Kodak will not be the only one.
The recent rally of over 1,400% made zero fundamental sense. In terms of margin and growth-wise, I also do not think that they are going to make above average return because it is a generic ingredient after all.
If you like psychology, read: Thinking, Fast and Slow Book Summary (What I Learnt As An Investor).
The market is acting as if the value of the Kodak company has increased by about $1.4 billion. As of the information now, I think that it is overhyped.
And this reminds me of the recent run-up of companies like Hertz.
Kodak’s debt position is still manageable.
But history tells us that when a company stock price runs up too much away from its fundamentals, that stock price will likely not be sustainable.
The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.
Important: Please read our full disclaimer.
Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
Read also now:
Yesterday (3 September 2020), the US market had its deepest one day decline since June. The S&P 500 and Nasdaq had their deepest declines since June 11 and for Dow, it was their biggest decline since June 26 […]
My Bet: In 2020, The Stock Market Will Not Crash Again. Yes, it is hard to predict where the stock market is heading in the short term. But my bet with regards to virus-related concern is that I do not think that we will crash again back to March-April Lows in 2020 just because of it […]
Think About How SIA Was When Times Was “Normal” Before we got into this COVID-19 mess, SIA is already not a great business to own even when times were “normal.” All of us know that the airline […]
In this article, I’d like to share eight signs of potential fraud in our stocks portfolio that we should be careful of. These are eight simple potential warning signs of bad financial reporting or early markers […]
3. As of 1H20, Most Earnings Paid Out As Dividends Based on AEM 1H20 reports, their cumulative capital allocation breakdown from 2017 to 1H2020 is as follows: Dividends – 47%, Acquisitions – 25%, Capex – 18%, Buybacks – 10%. It is interesting to note that […]
Last Friday on 24 July 2020, Intel closed 16.24% down. Although I do not own any Intel stock, I was curious why it fell after releasing its Q2 2020 results. Just a while ago, I saw the news that after 15 years of partnership, Apple decided to break up with Intel and stop using its […]
1. Temasek Portfolio is Huge. Although I know that Temasek has a huge portfolio, I was surprised to see that it is around the size of Warren Buffett’s. As of 31 March 2020, the net portfolio value or NPV is at S$306 billion. So we have our own Warren Buffett in Singapore, that is […]
Who is Adam Smith? Adam Smith (1723-1790) was a philosopher and economist who was best known for authoring the book An Inquiry into the Nature and Causes of the Wealth of Nations. Wealth of Nations also happens to be one of Warren Buffett’s favourite books […]
As a value investor, as a practitioner of value investing, I am very interested in studying funds I view as an executioner of the various value investing methodologies I myself am very passionate about. In this article, I will list down some of the value investing funds in […]
There is no excerpt because this is a protected post.
How do people get rich by investing in stocks? Can we actually get rich by investing in stocks? Yes, we can. But we need to utilize both Patience and Compound Interest in Great Companies. With the proper foundation, framework, character, and skills, I truly believe that […]
Sun Tzu Art of War Quotes “He will win who knows when to fight and when not to fight” – We should only invest when there is clear benefit to do so, do not do something just for the sake of doing something. “If you know the enemy and know yourself, you need not fear […]