Kodak stock is going ballistic this week, but investors need to wake up. You shouldn’t touch this stock with a 10-foot pole.

Kodak stock is going ballistic this week, but investors need to wake up. You shouldn’t touch this stock with a 10-foot pole.

  • Kodak stock has soared over 1,000% over the last two days after announcing a pivot towards manufacturing drugs.
  • The company received a $765 million loan from the government to help bring back drug sourcing to the United States.
  • This situation looks like a pump and dump, and investors should be cautious.

Near-bankrupt film stock Eastman Kodak (NYSE: KODK) received a $765 million loan from the Trump administration to produce specialty pharmaceutical chemicals.
I dont need to tell you what happened next.
Does anyone think Kodak stocks surge is justified?
The news allegedly part of the White Houses push to re-shore American drug manufacturing from China sent Kodaks stock soaring by over 1,000% to $36 from $3 in a matter of days.
On Wednesday, the stock peaked as high as $60.
Investors should sell Kodak stock before shares crash back down to earth. | Source: Yahoo Finance
According to data from FactSet, trading activity in Eastman Kodak picked up in the days before the big announcement. The companys CEO purchased roughly 46,700 shares a month before the news dropped, raising questions about ethics and insider trading.
To make matters worse, Kodak has a long track record of incompetent leadership, and it lacks the financial health to execute its new strategy.
This share price level vastly exceeds any realistic valuation for the new revenue opportunity. Its a pump and dump of presidential proportions. Investors should sell Kodak stock before shares crash back down to earth. 
Incompetent leadership limits KODKs upside
The demise of Eastman Kodak highlights the dangers of shortsighted and, frankly, stupid leadership. Kodak fell from blue-chip status to bankruptcy court because of the digital camera a product it invented but failed to capitalize on because of its much lower margins compared to photo film.
Kodak filed for Chapter 11 bankruptcy protection in 2012 and exited the camera market. Almost a decade later, the company is still in flux, pivoting from one harebrained idea to another as it seeks to reinvent itself. 
Most recently, Kodak moved into the cryptocurrency space with a mining rig customers could borrow for $3,400 if they gave Kodak a 50% cut of their earnings. The concept received widespread derision for being unprofitable for miners, and it was eventually shelved after the price of Bitcoin fell in 2018. 
Weak financials make Kodak stock an insanely risky bet
Two years later, Kodak wants to move into pharmaceutical manufacturing.
On paper, the company looks ready to execute its new strategy because of its large manufacturing footprint. According to CNBC, Kodak has 16 million square feet of manufacturing capacity, including 88 reactors and a water treatment facility.
The network alleges that film chemicals arent that different from the key starting materials (KSMs) used to manufacture drugs. 
Kodaks story has more holes than swiss cheese, and investors should be careful about buying shares at these or frankly, any prices. | Source: Thomas Dutour/Shutterstock.com
Although Kodaks manufacturing prowess looks great, the companys financial situation is a disaster. The firm will struggle to survive without continued government support or massive equity dilution. 
In its 2019 annual report, Kodak highlighted substantial doubts about its ability to continue as a going concern. This company is plagued by titanic losses from operations and negative cash flow.
In the first quarter of 2020, Kodaks revenue declined 8% to $267 million. It reported a net loss of $111 million, with only $209 million in cash on its balance sheet.
Trumps $765 million loan will be a much-needed lifeline for the company, but for how long? With Kodaks core operations burning so much cash, that money could quickly evaporate before the new business takes shape. 
Dont let yourself be hoodwinked
Kodaks story has more holes than swiss cheese, and investors should be careful about buying shares at these or frankly, any prices.
The situation has all the hallmarks of a pump and dump, and the CEO himself might face scrutiny over his accumulation of shares before news of the loan went public. 
Here is a video of a nervous-looking Kodak CEO James Continenza speaking with CNBC on Wednesday. You be the judge. I wouldnt touch this stock with a 10-foot pole. 
Disclaimer: This article represents the authors opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.
Last modified: July 30, 2020 6:30 PM UTC

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