PrePaid principally derives the bulk of its revenue through the multi-level marketing of membership fees and enrollment costs slapped on new sales associates. The 10Q Detective notes that key metrics slipped year-on-year, with the volume of total new membership subscriptions and the number of new sales associates recruited in 2008 falling 9.8% and 17.8 percent, respectively, to 552,327 and 122,225.
Is the company involved with a tug-of-war with short-sellers? Although retention characteristics continue to disappoint, the board authorized an additional one million share repurchase last month. PrePaid has spent more than $110 million on stock buybacks in the last two years—or about 82 percent of total cash generated from operating activities! In 2008, the company spent $44.7 million alone, retiring one-million (+) shares at an average price of $42.44 a share. Given the stock’s [three-month] average volume of 86,496 shares traded per day, it would take about 20 days to cover total shares [known] shorted.
Could a cash shortage be on the event horizon? Reggie Middleton, another well known short-seller certainly thinks so. The company must report first-quarter 2009 earnings by May 15—just in time for May option expirations….
Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.