A Lockup Update

A few weeks ago, I wrote an article describing my formula for "the lockup dip and bounce," a phrase I used to explain the typical effect a lockup expiration has on a stock's share price. To illustrate how this works in practice, I pulled charts on the lockup expirations from last week, and here's what I found.

The first deal to look at was Alliance Data Systems(ADS). In a previous article, I commented on the strength of the stock going into its lockup expiration. When a company is tightly held such as this one, though, a lockup generally has little effect on the long-term prospects of the stock. As expected, the stock slipped slightly before the lockup expiration and popped up immediately afterwards. Light selling occurred, but nothing serious.

Torch Offshore(TORC) was a deal that I expected nothing out of for its lockup expiration. After a stock has suffered as much as this one has over the last six months, I found it difficult to think that anyone would want to sell it at its current price. Also a closely held company, TORC's lockup expiration passed by and nobody flinched. I guess restricted shareholders really did look elsewhere for their Christmas money.

Last on the list was United Surgical Partners(USPI). I have to admit that I received a flood of emails in support of the company after my statement that investors should "expect to see some selling." But let me make one thing very clear: I am a believer in taking profits. With the stock's stellar performance since the IPO, I found this to be an excellent opportunity for restricted shareholders to take some money off of the table. On Dec. 6, the day after the lockup expired, trading volume shot up to 1.2 million shares, and the stock fell 46 cents on the day.

What happened afterwards? The stock jumped right back and the stock returned to its previous levels.

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