This is a quick little note to anyone who is watching or holding Carebook (TSXV:CRBK).
We saw a very interesting press release this morning... Persistence Capital Partners (PCP), the main backers behind Carebook, filed an insider purchase for $25,000 worth of stock. While I was correct that we would see insiders step in here, I was not correct (at first glance) about the quantity in which they would do so. The press release states that the order only amounted to $25,000 - a relatively small amount and not exactly a huge vote of confidence.
After reading some comments and conferring with others, I know there are some people out there who saw the press release this morning and immediately assumed that the $25,000 figure was the end of PCP’s buying. It seemed as though this naive assumption was actually a big reason why the stock dropped so quickly today. I will admit, when I first read the press release, I was even partly under the impression that this would be the last of the buying we would see from PCP and insiders. After analyzing the situation critically, it became obvious that this is not the case.
First of all, the press release we saw this morning was MANDATORY. It was put out for legal reasons. PCP is a 55% majority shareholder in Carebook so they were legally required to report their activity to the market; whether it was one share bought or one million shares bought, it would not have mattered. Although, I do understand why some were under the impression that this was the end of PCP's buying, as insiders often do not file/report until after they have fully scaled into or out of their position. With that I will say this, I can assure you that the press release alone does not necessarily mean that PCP has finished buying. There could be more to come.
Secondly, If PCP was adding to their position in the open market yesterday at $1.749, then I would be willing to bet that they were also adding in the open market today, especially after the price drop. PCP knows the true value of this better than anyone. They also know that Carebook has a funding gap and, as majority shareholders, i'm sure they will want to see that funding gap closed at higher prices than Carebook is currently trading for. On top of that, PCP is a MULTI-HUNDRED MILLION DOLLAR fund with a TON of firepower. $25,000 is not even a lot for retail, let alone for these guys.
Like I said before, if you think that a multi-hundred million dollar fund is going to purchase only $25,000 in the open market as a vote of confidence while the market is SEVERELY undervaluing the company.... think again. So, keep a close eye on the SEDI filings over the next few days.
DISCLOSURE: Author owns shares of Carebook and may choose to buy or sell at any time without notice. Author did not receive any compensation for publishing this article.
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