Seeking Alpha article
The article said LOY is listed on the TSE, this is not true. I have done some indepth researches on this company and believe that this is a good short for the reasons below.
After speaking with industry people in the language schoo sector, I learned that this company and its many schools are in a serious state of chaos.
For example, one of their acquisitions called Westen Town just signed up with an union. This means some very unhappy employees.
Their COO resigned within 1 month after he started his new job.
From the investment community, rumor has it that the Board is planning to get rid of the CEO. If this happens, board battle will ensue and the CEO's reported ownership is less than 15% fully diluted.
The current CEO has a poor reputation in the Korean community as promoter instead of a business owner. He never owned any school in the past. He was only a manager with a defunct school.
I also did some calculation on the amount of money LOY has raised in the past 12 months (less than $15M), and the amount they paid for all the acquisitions in the past 12 months ($23+M). This means LOY is operating on fumes, or desparately looking for new money at any cost.
Consolidator rarely works. With a dozen schools puchased in less than 24 months, their employee count must have increased sigificantly from 10s, to 1,000s. This is wreckless, and the union stepped in. Union means higher operating cost, and reduced flexibility.
The stock price plummented because it is clear that this company is entering into a state of chaos with growth from $2M to $68M in 24 months. Integration of machines may be easy. Intergation of human being from 10s to 1,000s across 12 acquisiitons is a ticking time bomb waiting to blow up.
I also researched other companies on the margin of the English school business. It is a dog eat dog market.
Most of the schools puchased by LOY were marginal businesses if not net loss operatons. I was told these are junk schools with only a handful of students.
Simple logic is, Negative 10 + Negative 10 does not equal to positive 100, and this is the kind of margin LOY is showing???? The numbers dont add up.
Its current CEO never ran any big school and now he is learning to operate 12 schools with tens of thousands of students? And he has to learn this in 24 months? This is a diasaster waiting to happen.
I was also shocked to find that their total issued and outstanding was 70M a year ago, now 145M before counting the warrants and options, and soon the convertible debt etc.
This small company will have 200+M shares issued and outstanding plus options in a few months. Seeking Alpha's prediction of $0.80 per share means a $160M market cap company built on these characteristics?
Cash flow problem, crazy management, plummeted stock price, union formation, over expansion in less tha a year, and its managment's complete lack of experience in running a company with more than a dozen employees a year ago.
The smart money is selling and the suckers are buying in, hence the daily volume. Many are bailing out while morons are buying in. If this is so great, why are so many people selling? Every share of buy order should increase the share value.
Can this be a dream comes true, or another stock hype? Remember the old saying: when its too good to be truth, it aint truth.