Investors have a chance to build a short position in shares of TPI Composites(TPIC) - Get Report during the next week and ride the stock lower as it slides as a result of the lock-up expiration on Jan. 18.
Shares of TPI Composites have risen 51% since the July initial public offering, and pre-IPO directors, executives and other insiders will finally have a chance to cash in their gains when the lock-up period expires that day. These people own about 25.5 million shares, which dwarfs the 6.3 million shares that comprised the IPO.
TPI Composites, which is based in Scottsdale, Ariz., manufactures and markets composite wind blades as well as precision molding and assembly systems to original equipment manufacturers. The company operates across major segments around the world, and its clients include General Electric.
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For the fiscal fourth-quarter ended Sept. 30, sales increased 23.1% to $198.9 million; total billings increased 28% to $196.1 million; net income attributable to common shareholders increased to $2.2 million or 8 cents a diluted share; and adjusted earnings before interest, taxes, depreciation and appreciation increased to $19.6 million from $7.6 million a year earlier, with an adjusted EBITDA margin of 9.9%, compared with 4.7% a year earlier.
Although the TPI Composites' IPO priced at $11 a share, significantly lower than the expected price range of $15 to $17, first-day returns and subsequent returns have been impressive. The stock had a 23.3% first-day return, with a jump of 18.3% in the after market.
From its first-day closing price of $13.56, the stock rose to a high of $22.67 on Oct. 7. It declined from there to $13.36 on Nov. 15 and is now trading above $17.
With just 6.3 million shares initially offered, if insiders -- comprising 14 individuals and five firms -- sell even a portion of the shares they own, that could push the stock price down considerably. The stock's modest average daily trading volume makes the likelihood of a short-term impact even higher.
Expect abnormal negative returns during the two weeks surrounding many lock-up expirations.
Risk-tolerant investors should establish a short position in several lots over the remainder of the trading week. Investors should hold shares through the lockup expiration and cover their short positions on Jan. 19 and 20.
This article is commentary by an independent contributor. At the time of publication, the author was short TPIC.