When Share prices of a company = $0.00

Hi Peoples,

I was just wondering what happens when a company's share price drops to $0.00, does anyone know? :confused:

Does the company fold?
Can a company unlist and still exist?
Does the company 'owe' anything to the shareholders?
If it still has profits does it render it still a lost cause in the business world?

Just something I've had to ponder recently! :)

Cheers
Lauren
 
Re: Re: When Share prices of a company = $0.00

Originally posted by Steve Navra
BUY AS MUCH AS YOU CAN!!

:D :D :D

HAHAHAHA! Thanks Steve!

"Yes, I'd like $100K worth of those $0.00 shares in the window there please!" :p
 
Originally posted by asy
Does that mean you also own it's debts? and is that a good thing??

asy :D

Well i suppose you could offset the debts against your own companys profits. Ive heard of something like this being done.

And probably the company with $0 share price has some assets so you had to buy those, maybe they would go to a liquidation auction if the company is liquidated.
 
But seriously . . .

Of course it will depend on the company's fundamentals:

D/E ; P/E ; Liquidity Ratios . . . and many more.

Assuming the debt is manageable and there are in fact earnings then . . . P/E = 0/$ = 0 (Wonderful buying opportunity!)

Ahem . . . market sentiment (Herd mentality) would obviously have 'got' it very wrong if the accounting fundamentals were sound.

Reminds me of NAB at $24-55 One week post Sept 11th!! :p

Steve
 
Not quite $0.00 yet but good old DUMBASS Jimmyjamjars got sucked into buying Big Kev shares when they floated the company. Thought to myself, "Australian company trying hard to gain a piece of the cleaning product market, yeah count me in". Schmuck!!!!!!!!!!!! Now woth all of about 4 cents each. I'm glad Big Kev's excited coz' I'm not.
JIM
 
Hi Loz,

I dont think there has ever been a case where a share price has dropped to 0.00 while it has been freely trading, the market would never let this happen to a company which has some sort of earning capacity, because people would see the stock is undervalued and buy it, which would keep the price above 0.

Technically i don't see why the company would fold, it would just have a hell of a lot of trouble raising equity through share issues :)
 
I'm glad you asked this Loz 'coz I've wondered the same thing. When Tech stocks were the 'go', I thought "now what is the 'net likely to be used for by lots of people" and came up with travel. So I too bought shares in an Aussie company - travel.com.au

It's a good site and gets good reviews and does good things, but I bought at $2.91 and they are currently worth 10 cents.

I know you can offset your losses against your profits, but the rest of mine are good so I'm not getting rid of them. So like you I've quiety been wondering what to do with them.
 
G'day Olly,

I read somewhere (might have been IRIS - I bought them) where they showed that it is better to "take a loss" BEFORE "making a gain". Can't remember the finer points (and shares are not my thing... ) but maybe it is worth looking at selling them to allow any profits to be offset ??????????

What do you think, people? Is this a useful strategy, or not? (Should I read IRIS again)?

Regards,
 
Probably, when the shares hit zero the computer systems running the exchange would fry :)

In reality, shares would be suspended from trading & probably delisted.

It is worth considering though that there are a number of trading public companies in Australia and other nations which have more debt than equity, thus if forced to liquidate are actually worth less than nothing = share value smaller than zero!

The only value they have (for the market) is the cashflow they generate (aside from social values such as employment).

I'm thinking Newscorp as an eg here :)

Cheers,

Aceyducey
 
Originally posted by Steve Navra
But seriously . . .

Of course it will depend on the company's fundamentals:

D/E ; P/E ; Liquidity Ratios . . . and many more.

Assuming the debt is manageable and there are in fact earnings then . . . P/E = 0/$ = 0 (Wonderful buying opportunity!)

Ahem . . . market sentiment (Herd mentality) would obviously have 'got' it very wrong if the accounting fundamentals were sound.

Reminds me of NAB at $24-55 One week post Sept 11th!! :p

Steve

Steve,

I'm a great believer in learning from some of our 'mistakes' as well as 'successes'(I said I'm a great believer in it.......didn't say I was good at it :D ). You mentioned NAB after S11, but would you also like to share(pardon the pun :p ) the story of any stocks you have been involved with in the past that didn't go to plan?

If you would, what mistakes do you believe you made with these particular stocks and what did you learn from them to do differently next time?


:)
 
Originally posted by Alan H
but would you also like to share(pardon the pun :p ) the story of any stocks you have been involved with in the past that didn't go to plan?


Hi Alan,

No horror stories . . . I am happy to say!

What is well documented from our past news letters are the signals of when to exit certain stocks . . . when they move out of our fundamental range: example D/E becomes undesirable.

For instance the instruction to move out of Southcorp 12/04/02 (I was down 0.22% at the time)
The price was $7.32!! (Moved into NAB at $33.06 on the day) Phew . . . saved a fortune!)

Similarly: Exiting Sun-Metway on 25/01/02 ($14.69) and entry into Tabcorp on 25/01/02 ($9.56).

NOTE: There is no predictive element involved . . . purely that the particular shares were out of the acceptable value range.

Currently LLC and RIO are at very low price levels . . . so we are in the negatives on these two. The point is we are holding heaps and both companies are fundamentally sound . . . so will recover.

When . . .??? Nobody can know, but eventually they will . . . be it 6 months; a year ; two years and we will realise the profits then.

Patience is a virtue . . . each little bit adds up to $$$$$$$ :D

Overall DOLLAR COST TRADING gets the result!

Regards,

Steve
 
Hi Steve,

Yes, the move out of Southcorp at the time certainly turned out to be a good move. :) In April 2002 it had a Debt/Equity of 247 and I guess would have been considered a 'problem' in the event of something dramatic happening. Mind you, the D/E was this figure in November of 2001 too so I presume it was other reasons that made you exit in April 2002?

You said "There is no predictive element involved......." and then "Currently LLC and RIO are at very low price levels.......so we are in the negatives on these two. The point is we are holding heaps and both companies are fundamentally sound.......so will recover."

Not being picky here(just learning) and fundamentally I take your point, but isn't the fact you say they will recover BEING 'predictive'?

LLC and RIO may currently have acceptable fundamentals but what if they drop dramatically for some reason(plenty of examples of 'out of the blue' reasons for that happening......) and as you say you are holding heaps of them. The fundamentals reduce to an unacceptable level. If the fundamentals don't stack up then I guess you are forced to take a loss on the deal. Yep, I guess some of these could be held for a period, maybe years anticipating a recovery, but I guess you have to weigh up the 'opportunity' costs of being in a 'more attractive' stock and getting better returns sooner?

I guess it was examples such as this I was hoping to learn something from but if it's never happened to you then your fundamental analysis is obviously proving to be excellent.

As always, on this issue I only speak as a beginner who can only learn more :)


:)
 
Originally posted by Alan H
You said "There is no predictive element involved......." and then "Currently LLC and RIO are at very low price levels.......so we are in the negatives on these two. The point is we are holding heaps and both companies are fundamentally sound.......so will recover."

Not being picky here(just learning) and fundamentally I take your point, but isn't the fact you say they will recover BEING 'predictive'?


Aha . . . the point exactly:

No, NOT being predictive . . . the fact that the fundamentals are this sound suggests the share is under-valued, that is all . . . a suggestion.

Any form of chaos could strike at any time . . . and then one has to quantify value against fundamental strength. If the share moves out of the range of acceptable criteria . . . it gets dumped in favour of a more sound share/s.

Take the loss?? NO, at that point the loss has already occurred.
Better out . . . than to OneTel and (not) back again!

There can be NO PREDICTION . . . just the rational defense of sound criteria.

And so we trade . . . :)

Regards,

Steve
 
*slowly sinking into thick skull*

Ok....

The fundamentals of the stock are all important and effectively I guess you are saying that the price movements create opportunity and as long as the fundamentals remain sound you effectively ignore the current price as a reason to exit the stock. Yes?

Do you never adopt some sort of 'stop loss' measure based on price though?

Unfortunately some of the fundamental criteria are going to be reflecting historical information such as earnings figures from up to 6 months ago.

Let's say we use the example of an airline that has reasonably good fundamentals reported just after the last 6 monthly report.
'Chaos' strikes in the next month or two with a) a dramatic rise in world oil prices(no hedging) b) large outbreak of SARS in Australia and c) an onboard terrorist incident.

Share price drops 35% but based on last REPORTED earnings, debt etc. things are still looking fundamentally sound. Possible new borrowings, lower earnings etc. have not yet been reflected in official reporting. Things are moving very quickly!

A 35% drop may instantly invoke a big BUY opportunity for you and you proceed with this purchase.

Two months later, another dramatic 'chaos' event occurs which causes the share price to drop another 25% from which point the company is critically damaged and doesn't recover.

My point is, although the fundamentals are very important, wouldn't it also be wise to incorporate a 'stop loss' strategy to cover you?

Price drops may often be followed by 'herd like' behaviour but on some occasions the herd gets it right. A large proportion of price may well be sentiment but price also dynamically reflects events as they occur(admittedly TOO much on many occasions).

Many fundamental criteria reflect historical reporting and hence are going to have a time lag which under certain circumstances may be critical.

While adopting your general philosophy, wouldn't it be wise to also incorporate a 'stop loss' of say 25% regardless?



:)
 
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