NEW YORK, NY--(Marketwired - Jan 29, 2014) - LiveDeal (NASDAQ: LIVE) recently announced it will be initiating a 3-for-1 forward stock split in early February, but ahead of the split, investors with short positions will be looking to cover before their position also splits into one 3 times larger than currently held. Late in Tuesday's session, we may have seen the first shot at trying to create doubt in the minds of long investors at LiveDeal. Shares of the company's stock began to pull back after an article written by someone disclosing he does, in fact, have a short position in the stock, appeared on the financial website Seeking Alpha.
Like most Seeking Alpha articles written by those short a particular stock, their concerns are never aired when the stock is priced lower; instead, investors are treated to a laundry list of negative topics after the writer has built a short position at much higher prices. And, then in an attempt to look like the savior, the article is published and the writer hopes to profit exponentially after the seed of doubt is planted.
This phenomenon serves two purposes when the company is about to conduct a forward stock split. It helps the writer enjoy a nice payday as the price pulls back on fear, and it allows the author to cover their position before having to do so with 3 times as many shares after the stock splits and potentially moves to higher prices again. Keep in mind a $1 increase after the split is equivalent to a $3 increase before the split, so the stakes are high for anyone short.
Stockholders will receive three shares of Common Stock for every one share of Common Stock owned on the record date of February 3, 2014. Those additional shares will be distributed at the close of business on February 11th, and the stock split will go into effect on NASDAQ when trading begins on February 12th.
LiveDeal was due a pull back, and there are likely many investors on the sidelines who are cheering for a much lower split price than the $20-25 range it was trading at prior to Tuesday. Any pull back before the split means the stock will have a more attractive entry price after the split, thus ensuring more investors can afford the lower price, and grow with LiveDeal as its innovative new "instant-deal" platform takes off in more cities and in more industries outside of the dining industry.
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This article is the opinion of SMMG and was written based upon publicly available information. LiveDeal hasn't endorsed or compensated SMMG for this article.