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Big Funds Love This Small Stock -- Should You?

Stocks in this article: BODY

DELAFIELD, Wis. (Stockpickr) -- Small-cap stock trading is not for the faint of heart.

>>5 Stocks Set to Soar on Bullish Earnings

Trading in the small-cap universe requires one to be very flexible and able to stomach large volatility moves. Small-cap stocks tend to have lower share prices, and when a stock trades at around $1 a share, it doesn't have to move much to cause large swings from a percentage-point basis. That being said, when you find a compelling opportunity in the small-cap world, you can generate fat gains when a swing goes in your favor.

One small-cap stock that's piqued my interest here is Body Central (BODY), which operates as a specialty retailer of young women's apparel and accessories in the South, Southwest, Mid-Atlantic and Midwest regions of the U.S. This is an extremely small-cap stock, with a market cap of just $19.6 million and an enterprise value of $11.7 million. This stock has been absolutely annihilated by the bears so far in 2014, with shares down sharply by 69%.

>>5 Rocket Stocks Ready for Blastoff

Shares of Body Central have been under heavy selling pressure of late after the company said it was possible it would not be able to continue as a going concern after reporting poor numbers for its year-ending quarter. Net revenue for the quarter in question dropped 18.3% to $66.2 million, vs. $81 million for the fourth quarter. Losses from operations were $26.6 million, vs. income from operations of $3.9 million for the fourth quarter of 2012. The company's gross for the quarter dropped by 45% to $13.4 million, vs. $24.5 million for the same quarter last year.

These disastrous results are putting a big crunch on Body Central's liquidity, but the company did say on its conference call that they believe they have enough cash to survive through 2014. At the moment, Body Central as $20.1 million of cash on hand, which includes $12 million drawn on a recent term loan. To put things in perspective, with shares of BODY trading around $1.18 as I type this, the stock is basically trading at par on a cash-per-share basis.

The market is pricing shares of BODY as if the company is about to go out of business soon. There's definitely a chance that that could happen, but the reason I am warming up big-time to this stock is due to the fact that some large players have started to move in at these levels. On April 4, hedge fund Lane Five Partners reported that it had taken a 7.5% stake in shares of BODY after the firm bought 1,247,000 shares. Then yesterday, mergers and acquisitions advisory firm Blackwood Capital Group reported it has taken a 5.4% stake in BODY after the firm bought 900,000 shares.

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