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02/14/2004

ELOY Update

Well, my ELOY trade did not last long. As I noted in my previous post, I was worried about the stock’s lack of liquidity as well as the “hidden” dilution/overhang from the preferred stock so I decided not to take anything more than a symbolic position and put a stop loss in at $5.75, $0.05 above my cost. As fate would have it, just a few days later the stock traded through $5.75 and my stop was executed … at $5.52/share.

How could my stop loss get executed at $5.52 when it was pegged at $5.75? Primarily because I used a stop instead of a stop limit order. I consciously did this because of the poor liquidity of the stock. I didn’t want the stock to gap down and cross-lock my limit, so I went with a stop order at $0.05 above my cost figuring that the if the stop was activated I would actually get a trade somewhere between $5.75 to $5.70. In fact, $5.75 was indeed the quoted bid for about 15 mins and 2,500 shares cleared at that price about 10 mins before I was filled at $5.52, but my order wasn’t executed. In all likelihood my order wasn’t executed because I made the trade via E*Trade. E*Trade still sells off their orders to wholesalers, who provide retail investors who terrible fills on a routine basis. (Something I have written about extensively in the past.) If I had made the order via Datek/Ameritrade, some if not all of the 1000 shares would likely have cleared at the $5.75 price thanks to Datek’s superior automated execution.

I should mention that ELOY did report Q4 2003 earnings on 2/9. They were in-line with the positive preannouncement and the stock basically did almost nothing the day after. They appear to be making solid progress in rebuilding their business but still burned over $1M in cash in the quarter. Thus, from a fundamental perspective ELOY’s prospects for affecting a successful short-term turn around still seem pretty bright. That said, I hate the stocks complete lack of liquidity (emphasized by my poor fill) and the preferred overhang, so I will just observe the from the sidelines. At least I will be able to give my friend (a Wall Street analyst who recommended the stock) a hard time about his pick.

February 14, 2004 in CRM, Stocks | Permalink

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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.