Top Ships Inc (NASDAQ: TOPS) has been an incredibly interesting stock to watch as of late. Over the past couple of trading sessions, the stock has been climbing upward at a tremendous pace. However, in the pre-market this morning, the stock is falling hard. So, what’s the deal? Why is it that TOPS can’t seem to hold onto its gains. Today, we’ll talk about what we’re seeing from TOPS, the dangers surrounding the stock, and what we’ll be watching for ahead.
What We’re Seeing From TOPS
As mentioned above, Top Ships is having an incredibly rough time in the market this morning. As investors start to realize the dangers associated with the stock, we’re starting to see tremendous declines. Of course, our partners at Trade Ideas were the first to alert us to the losses. At the moment (9:06), TOPS is trading at $1.86 per share after a loss of $0.46 per share (19.83%) thus far today.
Why The Stock Is Falling
At the end of the day, the recent gains that we saw on TOPS had more to do with a short squeeze than the company itself. Ultimately, those who shorted the stock saw gains, leading to losses. So, they were squeezed out of their positions, sending the stock skyrocketing! Now that the short squeeze is over, the stock is free to go back to its normal trading patterns, and likely has plenty more room to fall.
What’s So Bad About Top Ships?
At first glance, it may seem like TOPS is a strong investment choice. However, when you dig further into the details, red flags start to pop up everywhere. The first of these red flags is known as Kalani Investments. The firm is known for funding companies in the shipping sector through the use of convertible notes. From there, Kalani will convert these notes and dump the shares, diluting the stock greatly and leading to massive losses. If you haven’t heard of Kalani or the devastation they are known for leaving in their wake, just take a look at their relationship with DryShips (DRYS).
As mentioned above, Kalani and TOPS have a relationship. While Top Ships recently announced the completion of a Kalani equity purchase agreement, the agreement isn’t actually entirely finished. The reality is that Kalani is still involved with Series C Preferred shares. At some point, these shares will need to be converted into common shares. Considering the number of Series C convertible shares reported, we can expect that TOPS will be quickly diluted following the conversions, with additional shares coming in the range between 1.8 million and 2.1 million.
Investors Have Very Few Rights When It Comes To Top Ships
In the United States, investors have rights to protect themselves when a publicly-traded company isn’t doing the right thing. In fact, Even TOPS has faced legal issues for the non-stop dilution and reverse stock splits they have taken part in at the expense of investors. However, these cases aren’t likely to go anywhere, and that’s largely because of where TOPS is headquartered.
While Top Ships is a Greek shipping company, they are incorporated in the Marshall Islands. This ultimately provides protection against investors who attempt to fight the company when they don’t hold up to their fiduciary responsibilities. This is because laws surrounding fiduciary responsibilities are not clearly established in the Marshall Islands. Therefore, investors don’t necessarily have a way to fight back when companies like TOPS, DRYS, and even DCIX, take advantage of them, leading to dramatic losses.
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The Bottom Line Here
The bottom line here is that the run on TOPS was fun. However, chances are that it’s over, and that there is plenty more room to fall. At the end of the day, Top Ships has done a good job of protecting themselves from legal actions due to a lack of compliance with fiduciary obligations to shareholders. As such, they have penned horrible deals, moved forward with reverse stock splits, and more, all at the expense of their investors. Considering the current condition of the company, we’re likely to see more of the same ahead! So, if you plan on trading this stock, please be sure to do so with caution!
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