Escalera Resources Preferred (NASDAQ:ESCRP) Goes ‘On Sale’
By: Tim McPartland,
As reader Bryan asked “What is going on with Escalera Resources Preferred?”. We had already been watching it this week as we personally have 300 shares in our portfolio–and a drop of near $2/shares gets our attention.
The preferred shares of Escalera (ticker:ESCRP) had been tooling along at $25/share (plus or minus a quarter) for the last 3 months and out of the blue shares open up Wednesday at $23.50 before dropping further to $22.70 eventually closing at $23.15. Today the shares drifted and closed down another 35 cents.
Escalera Resources was previously Double Eagle Petroleum until last spring when they changed their name to Escalera Resources. The issue in question is the 9.25% cumulative preferred issued in 2007. There has never been a missed payment–and while Escalera loses money continually, in general they are cash flow break even. While they just a tiny gas producer — for the reward offered here the risk is reasonable–the current yield today is 10.05%. We will add a few shares to our personal holdings tomorrow (Friday).
So why the drop in the share price? Believe it or not we think it was simply 1 holder liquidating a 6,000 share block right away Wednesday. The liquidation was noted by others and a mini-panic sets in. Small holders ask–What’s wrong? Something must be wrong! I’m getting out!! and the mini panic goes on for days this way. The average volume on the issue is 7,000/shares per day—it traded 63,000 Wednesday out of 1,600,000 shares outstanding (which is why I call it a mini panic). I think this small volume speaks to the ‘dopes’ selling at this level—real issues would cause a huge volume selloff–maybe 200,000-500,000 shares–not 63,000.
We do note that back in mid August Escalera filed registration statements (shelf offering) as if they plan to do a cash raise of some sort. And they do have a NEW management team with big plans–and the experience to make it happen. But just the same–it is a 10.04% current yield.
DO NOT follow our lead on further purchases based on this short article. Go to the link above and then the company website which we link from the above link. You and you alone are responsible for your purchases.