Delcath Systems, Inc. (FRA: DV32) Previously (NASDAQ: DCTH) is a stock that I have covered in great detail throughout the year 2017. Unfortunately, this hasn’t been the best year for the company, as it has given up around 90% of its value, and things don’t seem to be getting much better. Obviously, this has led to some serious investor concerns. However, there are plenty of people that see a serious opportunity brewing here. Today, we’ll talk about the frustrations investors have emailed me about, the potential opportunity in the making here, and what we’ll be watching for ahead. Before we get into that however, we’d like to extend a thank you to our partners at Trade Ideas who alerted us to the gains on the stock today. Currently, DCTH is trading at $0.39 per share after a gain of $0.005 per share (14.71%) thus far today.
Addressing DCTH Investor Concerns
As mentioned above, investors haven’t been very happy with Delcath Systems as of late. The flurry of upset seems to have started early on in the year when the company tried to get approval for a reverse split but was shot down by investors. As the year ticked on, the company attempted yet again to get investors to vote for a reverse split, and failed once again. Upon this failure, the company announced that it would be voluntarily delisting from the NASDAQ and moving to the OTC market.
However, in the latest 8K from the company, DCTH said that they have reached an agreement with a warrant holder of class A and class B shares. Essentially, the agreement will push out another 500 class C shares at a price of $1,000 each. Interestingly enough, the shares hold 500 million votes that can only be used to vote with regard to a reverse split. So, DCTH may be pushing a reverse split anyway. In a recent email, I received the following question about this action:
“Should a company be allowed to simply make a deal, sell shares with the explicit intent to bypass shareholders and get whatever vote management desires then buy those shares back after?”
The logical answer to this is no. No, a company should not be allowed to do this to their shareholders. At the end of the day, companies have a fiduciary responsibility to their shareholders, and it seems as though Delcath is working hard not to fulfill this responsibility.
This Could Lead To A Class Action Suit
Of course, upset investors can lead to legal action, and I know of at least one (whose name I will not release) who is planning on taking legal action here. Here’s an email from another investor that I’ve received with regard to the upsetting moves made by DCTH management:
I hope your families are all recovering well and are safe since Irma and Maria.
DCTH board on ST will soon be taken down. I’m not just a scorned shareholder who’s angry from losing money on a questionable investment; I just despise corruption, especially in a Co with a product/device like chemosat.
DRYS didn’t even generate this reaction from me.
I know the BoD must do the best thing for the Co which may not always be what appeals to “every” shareholder, but something is very wrong, very corrupt with this Co.
We “are” attempting a CA suit, but I doubt anything will come of it. The Co has been sued successfully before for wrongdoing. There is a fiduciary duty to shareholders during the best & worst of times, yet this Co seems to go out of its way to slap-it to shareholders every way possible, every chance they get.”
While this may not lead to much, if a class action suit is filed against DCTH, it may, at the very least, get the company to start looking out for the better interest of its investors.
Is There An Opportunity Here?
At first glance, with everything above, you may be thinking, “Run for the hills!” However, there could be a very real opportunity here. With a potential reverse split on the horizons, or worse, bankruptcy, shorts are clamoring to get in on this stock. This alone could create an opportunity. Those who trade in this arena know that with such a large short interest, one piece of news could cause a short squeeze, leading to a massive move in the upward direction.
Another piece of the opportunity here is something that DCTH may be forced into. At the end of the day, the management at the company has made it clear that they are not doing the right things. However, they do have some very strong intellectual property. They could use this property to their advantage. With Chemosat, the company may be a prime target for a takeover. On top of that, a partnership surrounding Chemosat could be just what investors need. So, all is not lost… yet!
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on DCTH. In particular, we’re interested in following the company to see if they, for some reason, start to uphold their fiduciary obligations to investors. We’re also interested in the potential class action suit, potential takeover, and potential partnership. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks! If you’d like to express your concerns with regard to Delcath Systems, feel free to email me at [email protected].
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