The Beginning of the Process, JAXB Rights Offering

Whenever I come across a rights offering, or warrant expiration, I make an initial checklist to determine whether or not I want to look at the situation for a possible trade. I do a back-of-the-napkin analysis listing what I like and don’t like about the trade.

In combination with that initial checklist, I make an estimate of where I believe the stock can go if it does bounce after the offering. In this particular case I think the stock may have a shot at $.60, but even a bounce to $.55 is a 10% return. I think a modest position could be sold in the $.47-$.48 range fairly easily taking a small loss (this is actually the more important factor for me, where I can get out if I need to).

Here’s the beginning of my process for JAXB.

Likes:

• The stock is low priced (ideally I like them around $5 – $20, but better it’s cheaper than more expensive)
• There was a private placement back in December at approximately the same price as the rights offering (stock dropped to it’s current level when these shares were registered)
• $.50 has been a support level for several months now, since those initial offering shares were registered
• There is substantial insider and institutional ownership of the shares (insiders 62%, institutional 25% according to Yahoo)
• The additional shares make up a relatively small percentage of the total float
• In it’s most recent earnings reports the company seems to be hitting the reset button, or, “throwing everything but the kitchen sink” into the reports in order to clear the decks moving forward
• Along with the reset they’ve gotten rid of their CEO and brought in new board members
• They appear to be aggressively, at least they use the word twice in their last earnings press release (lol), trying to manage their under-performing loans
• Along with this their numbers seem to be headed in the right direction
• Sector: Banking stocks, while recently pulling back, are generally trending up
• They have no branches in Syria;)

Dislikes:

• It’s thinly traded, if it does start to fall it may be difficult to get out of a large position
• The book value, versus say an EVBS in it’s offering, is not as good, which may limit the size of the bounce
• There is a large overhang from the previous offering (though I’m not too worried about those holders hitting the stock at $.50)

At this point my likes definitely outweigh my dislikes. Any thoughts? What do you think of the offering?