Bloodbaths and Buying Opportunities: Taking a Look at Meridian Waste Solutions (MRDN) Registered Direct Offering

The Entry Points

Stevie Swai

I’ve been watching MRDN off and on for the past 10 days or so and I even took a small position on November 20 in which I lost .06 /share once I realized this stock was nowhere near setting up for a good trade. It has only slowly pursued a downward path since then. At yesterday’s close, it was sitting at a support area of 1.27 and I became interested once again in looking for an entry point. At least watching for a set up. It was trading at 1.35 pre-market this morning and I gave myself a high five because identifying a good entry point before a stock makes a move, even if you are not trading it, is an important exercise. As 8:30 approached, it did make a ‘big move’….in the opposite direction LOL! Lucky me, nothing like a 20% off sale. On the other hand, the StockTwitters were devastated, whining about manipulation and how the company is out to screw them, blah, blah, blah. Listen, I don’t mean any disrespect to anyone. I was there once too and got burned so many times before I decided to start understanding how not to get snagged – just take profits and move on, especially when it comes to stocks that have not proven themselves as strong stocks (especially when solidified by a big accumulation area). It’s important to understand which stocks are for short-term trading only, and which are for holding. And if a company really shows a lot of promise and you wish to invest in it, still finding that optimal entry point is the most important thing. And in today’s case, for the long term investor in this company, all I can say is “what a sweet deal”.

On a rare occasion, I’ll actually look into a company, especially if it’s spiked on news. I like to understand how news affects stocks, as news and marketing affects strong stocks very differently than the stocks that have been beaten down and are trailing on a bottom. Strong stocks behave differently than penny stocks and stocks under, say, $5. Huge gains can be made on the spiking of news in the crappy players, but you can’t win until you sell, which means getting out. And if you are convinced the stock is going to the moon, let it settle down, wait for a solid reaction setup first, then get in again.

So why did this stock fall 20% on open? Because they announced that it entered into securities purchase agreements with certain accredited investors in connection with a registered direct offering of an aggregate of approximately 1,868,000 shares of common stock, Series A Warrants to purchase 736,000 shares of common stock, and Series B Warrants to purchase 664,000 shares of common stock. The offering price of $1.03 per share and related warrants resulted in aggregate gross proceeds of approximately $1.925 million.¹ The stock simply did what all company shares do with these direct offerings, they drop, for a while.

So why did I see this as good news while the majority of people saw it as bad? Well first of all, I had enough sense to get out of my position so I wasn’t a bagholder. And secondly, many companies that have been beaten down seem to announce share offerings, only after they’ve pumped up the stock and it’s selling at a higher price. This is very typical and it happens all the time. But this company announced it well after the stock had slowly fallen, which gave me a little faith that it’s seriously working hard to regain it’s value. And they released further news which explained why they needed to raise funds saying:

Meridian currently intends to use the net proceeds of this offering for working capital and capital expenditures. Following recent transactions in the past weeks for the Company’s Technology and Innovations Divisions, the proceeds will be used to integrate the businesses of Verifi Labs, DxT Medical and AST into the Meridian infrastructure, while further defining the divisions for growth into the future.²

They’ve completed an acquisition, in short, the company is growing, and it takes money to make money. Sounds pretty positive to me. Okay, now don’t get me wrong, I’m not writing this post with a bias, and I have taken only a tiny position to keep it in front of me. I will add more and trade it though when I see a good set up, and obviously the tumble today has made it so much more appealing. The point of this article is to drive the idea home of the necessity of taking profits when the profits are there for the taking, especially when trading the stocks that haven’t entered solid strong stock status.

Also, I’d like to point out how strong stocks rebound much differently than weaker stocks, when it comes to share offerings. For example, let’s take a look at DVAX. My partner has been bullish on this stock for a long time, and has discussed it numerous times. But he has a longer-term view of this stock, and used the share offering (first arrow) to add on (second arrow). With a stronger stock, fundamentally and technically (solidified with accumulation and at new highs), share offerings are opportunities. 

So the next time you jump into a small stock on great news, you may want to think about taking your gains, at least partial certainly, and getting out. That doesn’t mean it needs to drop off your radar, but it does mean you may want to let it settle down and breathe, then find an awesome entry point to get in again.

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References:

1. Dow Jones News Wire
2. Dow Jones News Wire