$SMTC - Short Catalyst 09/13
There is a curious situation brewing in a small-cap supplier of semiconductors. I say “small cap” because this once mighty mid-cap company has been torched down to a market capitalization of just $1.5 billion. It began last year at $89 per share, and currently sits at $24. Compared to the broader semiconductor space, Semtec (
SMTC) has grossly underperformed. And now their earnings is scheduled for Sept. 13, presenting a catalyst opportunity.
Surely this means I’m bullish on a potential regression to the mean? Actually, no. Last Thursday, Sept. 7th, I purchased 100 puts for October 20th at the $20 strike. Why?
1. Delayed Earnings
Originally scheduled for 09/07, SMTC announced on 09/06 that their earnings would be delayed. Companies that postpone a previously announced earnings release date underperform the broad market by 2.44% in the 3 days surrounding the
announcement. These companies are also likely to report deteriorating fundamentals, with earnings per share down by about 16% compared to the same period a year ago.
2. Reason for Earnings Delay
Not all earnings delays are created equal. For instance, an act of god, such as weather, or a pandemic, such as Covid, can result in generally muted impacts to the stock.
The problem is that SMTC delayed earnings because “…the Company is working diligently to complete certain procedures to conclude whether a valuation allowance is to be recorded against certain deferred tax assets” - from SMTC investors page.
Given SMTC’s recent acquisition, this calls into question their ability to generate sufficient future taxable income, which is bizarre and a red flag.
3. Sudden Change Notice of CFO
On Sept. 08, it crossed the wire that current CFO Emeka Chukwu would be succeeded by Mark Lin no later than Oct. 4th. Combined with the reasons for the earnings delay, this reeks of potential financial mismanagement, liability concerns, and damage control.
Position: I purchased 100 Oct. 20 $20 puts.
SMTC) has grossly underperformed. And now their earnings is scheduled for Sept. 13, presenting a catalyst opportunity. Surely this means I’m bullish on a potential regression to the mean? Actually, no. Last Thursday, Sept. 7th, I purchased 100 puts for October 20th at the $20 strike. Why?
1. Delayed Earnings
Originally scheduled for 09/07, SMTC announced on 09/06 that their earnings would be delayed. Companies that postpone a previously announced earnings release date underperform the broad market by 2.44% in the 3 days surrounding the
announcement. These companies are also likely to report deteriorating fundamentals, with earnings per share down by about 16% compared to the same period a year ago.
2. Reason for Earnings Delay
Not all earnings delays are created equal. For instance, an act of god, such as weather, or a pandemic, such as Covid, can result in generally muted impacts to the stock.
The problem is that SMTC delayed earnings because “…the Company is working diligently to complete certain procedures to conclude whether a valuation allowance is to be recorded against certain deferred tax assets” - from SMTC investors page.
Given SMTC’s recent acquisition, this calls into question their ability to generate sufficient future taxable income, which is bizarre and a red flag.
3. Sudden Change Notice of CFO
On Sept. 08, it crossed the wire that current CFO Emeka Chukwu would be succeeded by Mark Lin no later than Oct. 4th. Combined with the reasons for the earnings delay, this reeks of potential financial mismanagement, liability concerns, and damage control.
Position: I purchased 100 Oct. 20 $20 puts.
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