Market Overview

TheStreetSweeper Goes Short Skyline: Says Investor Error Is Main Reason Shares Are Up


Shares of Skyline Corporation (NYSE: SKY), a manufacturer of housing, modular housing and park models, fell more than 15 percent Tuesday after The Street Sweeper's Sonya Colberg published a scathing short thesis on the company.

Colberg offered seven of the "most seriously misunderstood and overlooked negatives" surrounding the company's business and operations.

1. "Mistaken Identity:" Shares of Skyline soared on March 9 when a news report titled "Vice's new TV channel Viceland will launch on Sky TV in the UK in September" hit Skyline's Yahoo Finance news feed page. However, the two companies have nothing to do with each other and the news report "got tangled up in Skyline's news feed."

2. "Industry Declining:" Manufactured homes make up "one of the market's most disappointing industries" and manufactured home purchases continue to decline due to the low cost of conventional housing and low mortgage rates.

3. "Skyline Loses Millions Yearly:" In fiscal 2016, after seven years of efforts, the company netted a "meager" $352,000 in net income. However, net losses have historically exceeded $10 million over the past few years.

4. "Who's To Blame?" Skyline cited its poor performance due to the declining stages of its life cycle. However, the company "still performs drastically rose than competitors."

5. "Cash Strapped: Stock Offering Looms?" Skyline burned through $4.3 million last year and fell to $6.2 million in February. The company has had to "lean heavily" on financing activities to continue operating and may need to do so again. Moreover, the stock's "inflated levels" makes it even more attractive for the company to conduct a stock offering.

6. "Going Concern: Auditors Doubt Skyline Will Remain In Business:" According to Colberg, Skyline disclosed to investors in a letter in which it said, "the Company has incurred recurring operating losses and negative cash flows from operating activities...These matters raise substantial doubt about the Company's ability to continue as a going concern."

7. "Institutions, Analysts: Not Interested:" Finally, analysts ceased covering Skyline completely in 2006 and "far more" institutional shares have been sold than bought.

Bottom line, Colberg argued Skyline's "formerly skyward-bound" stock will come "screaming back to earth" to a "very reasonable" valuation of $3 per share.

Posted-In: housing stocks Skyline Corporation Sonya Colberg The Street Sweeper TheStreetSweeperShort Sellers Short Ideas Trading Ideas


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