Tom Konrad CFA
When Lime Energy (NASD:LIME) reported accounting problems, including the possibility of fictitious revenue on July 17th, investors abandoned the stock, unwilling to own a company in which they knew the financial statements to be misstated. Over the next two weeks, Lime found a floor around $0.90 (down from over $2 on July 16th), as those investors who would sell at any price were replaced by those who, like me, feel that $0.90 is less than any reasonable estimate of LIME’s true value even in liquidation.
Volume then dried up and the stock traded in the $0.90-$1 range until August 21st, when Lime received a delisting notice from NASDAQ, for missing its quarterly reporting deadline. This was expected, since LIME’s quarterly report is being delayed until the company can fully investigate the accounting difficulties, which run back to 2010.
Despite the fact that Lime has up to 180 days to regain compliance with NASDAQ reporting requirements, this triggered another, smaller wave of selling from August 21st until September 7th, with the stock trading in the $0.70 to $0.75 range.
Starting on September 10, trading volumes again dropped, and the stock price began to jump around in the $0.70 to $0.82 range as volume sellers disappeared, and even small purchases could send the price up as much as $0.10.
With the large sellers gone, I anticipate that LIME will not again dip below $0.70 unless there is more negative news before the company files its second quarter report and corrects the previous accounting filings.
In terms of possible negative news, NASDAQ could issue another delisting notice based on LIME’s failure to maintain a $1 stock price for the last 30 days, but I expect if this were going to happen, it would have happened already. LIME will need to get its share price over $1 a share for 10 days, but filing audited financials should take care of both problems (unless the result of the audit is much worse than I anticipate.)
Although a large cloud of uncertainty still hangs over Lime Energy as we await the results of the company’s internal investigation, it looks to me as if we are unlikely to see a stock price below $0.70. In a worst case scenario, Lime could be liquidated for something near its tangible book value of $1 per share, so the current $0.70 to $0.85 share price range includes a substantial margin of safety.
With selling pressure abated, large investors will be unable to buy the stock without greatly increasing the current price. On the other hand, patient small investors still have an opportunity to benefit from a substantial upside move when the company completes its internal investigation and dispells much of the uncertainty which is currently depressing the stock price.
Disclosure: Long LIME
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