Ekaterina Zelenkova

Peerless Systems Corp. (NASDAQ:PRLS) Stock Is Artificially Revalued

by Ekaterina Zelenkova August 30, 2010
PRLS_price_chart.jpgThe utilized standard tool for elevating the market value of a stock has already shot and will maybe further shoot Peerless Systems Corp. (NASDAQ:PRLS, PRLS message board) stock to the clouds.

In one trading session, the announced by PRLS share repurchase order guaranteed a higher trading range, higher trading volume and not less important, a new 52-week high for PRLS stock.

The "miracle" was possible thanks to PRLS' s management strategy to ensure investors that there is no better investment. On Friday, PRLS was widely discussed and demanded.

The company's Board of Directors "unlocked" the tender offer to repurchase up to 13,846,153 shares of its common stock at a cash price of $3.25 per share.

The beginning of the artificial reevaluation of PRLS stock was confirmed by all related to Bandera Partners LLC parties and by Caburn Management, which beneficially own approximately 22.5% and 2.0% of the company's outstanding shares. They have agreed to tender all of their shares in the offer.

What are the actual effects of such share repurchasing?

First of all, the share repurchase will reduce the number of shares outstanding. The second and more important effect is that the reduction of the company's outstanding capital will increase the reported in the future earnings per share. In this way, the market value of the remaining shares will tend to elevate.

PRLS_from_the_site.pngA nice and easy procedure to make the company's stock more valuable, for which only the corresponding funds are needed. For the announced by PRLS offer around $45 million will be required. According to the latest company's financials, at the end of this April PRLS had cash and cash equivalents of $55.6 million.

The above funds will be enough for the management to "guarantee" liquidity, but raises the question of what is to follow?

The analysis of the company's liquidity and capital resources shows that not cash from operations is the main source of funds. The company's operations provided $2.9 million in cash during the three months ended April 30, 2010.

The cash increase was primarily due to the receipt of approximately $19.2 million from the sale of marketable securities related to the company's investment in Highbury.

So, what follows? In the near future, probably another huge PRLS stock rush, following the new high that was already noted. After a while though, since the company will need cash for operations and acquisitions, the new management may decide to issue shares again, and the wheel will spin again. The only issue which is not easy to predict, is the trading range of PRLS in these future days.

Since this Friday, PRLS succeeded to jump up to the range of $3.10 - $3.22 per share thanks to the company's repurchase offer.

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