HOV Equity Offering Gives the Shorts an Out

If you are a manager at Hovnanian (HOV - commentary - Cramer's Take), you are not thinking about earnings per share, you are thinking about surviving. That's why any rally with your stock is an opportunity worth taking, an opportunity to issue more stock. So what if the company bought a ton of shares higher when things were better, why not offer 14 million shares now, much lower, because going under gets taken off the table?

Dilution means nothing to a company like HOV. Nothing. That's a term for shareholders, not for managers. They want to be able to keep building homes, and they know that the short-sellers are keeping their equity high enough to be able to put out stock at a more inflated price than they would otherwise be able to given the gigantic losses the company is reporting and has reported for the last five quarters. Two-thirds of the float here is short. That's unbelievable. Now the shorts will have to use the deal to cover, because otherwise they will never get enough stock to buy without moving the thing up huge.

This is the lot of the shorts. They don't have it like the longs. They have to suffer through all sorts of indignities, including things like a voracious appetite by other shorts to keep shorting, making it harder for everyone else. Gang-tackle shorts are just so horrible. Take a look at Crocs (CROX - commentary - Cramer's Take) if you want to see what can happen.

HOV is making it so the longs get to stay alive, but it is making is so the shorts lose their principal goal: never having to cover because the stock is going to zero.

HOV will have enough money now to make it so the company can't go to zero.

So the equity offering is the shorts' last chance.

They should take it.

Random musings: Apple (AAPL - commentary - Cramer's Take) and MasterCard (MA - commentary - Cramer's Take) going up again. Good sign. Who is activating all of these iPhones without AT&T (T - commentary - Cramer's Take)? I want one!!

At the time of publication, Cramer had no positions in the stocks mentioned.

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