(By Rich Bieglmeier) Finding beaten down companies that could be on the verge turning around is one of the many benefits of our weekly accumulation/distribution list provides. When money piles into a stock that's flat on its back, it is usually one of two things, short covering or fortunes could be on the verge of changing.
In the previous week, investors picked up more than $3 million worth of Green Dot Corporation (GDOT). The reloadable prepaid debit cards provider's stock crashed form a July 26, 2012 close of $23.32 to $9.06 by the 27th's closing bell. That gets a double $%^# OUCH!
The stock got creamed when the company announced earnings that didn't live up to the Street's expectations and even worse, management lowered forward guidance citing "a greater level of uncertainty going forward in our business as the prepaid marketplace continues to evolve," and "revenues will be negatively impacted by increased competition beginning in the third quarter of 2012." That's the here and now.
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After the 60% drop, of course, analysts rushed to jump in front of one another with downgrades. Where were they on the 25th of July? Again, the gurus have been a little off target as $9.06 has been the closing low.
Last Wednesday, under the radar for most, CR80news.com reported "Financial services company Sallie Mae has launched a new prepaid debit MasterCard" with Green Dot. The card will help "schools disburse financial aid refunds. The new debit card features student protections and same-day refunds."
[Related -Green Dot Corporation (GDOT) Q2 Earnings Preview: Costs Could Hurt Quarter]
On the news, the stock price gained 11% on nearly three times the average daily volume. The next day, GDOT gave back a bit more than half of the previous day's gains.
From a purely technical standpoint, the stock is trading within the gap down elevator shaft. The spike in volume helps investors identify the potential breakout point for the stock's next leg up, should it come. Short-term, aggressive investors might consider setting their alarms for a price above last Thursday's high of $11.30.
If the stock heads north of its recent news driven high, it could ignite some buying as 15% of the float is sold short. How high? It's not unusual for stocks to retrace losses by three common percentages, 33%, 50% and 67%. That could potentially add $4.70, $7.13 or $7.13 to Green Dot's low of $9.06, putting possible targets at $13.76, $16.19, and $18.46, respectively.
Unless more unexpected news is announced, the next big announcement will be earnings on October 22nd. Then investors will get their first glimpse at how much market share of the prepaid card market Green Dot Corporation (GDOT) lost to the banks. Perhaps, the fall will not be as bad as anticipated, and the upgrades can follow?