i get trading ideas from many places on Shortable Stocks, and this idea came up on Friday when it was on the Intraday Volume Alerts service. Polished.com, formerly known as Goedekers, has an ecommerce site at https://www.goedekers.com/
, and I'm not sure which name is better. I mean, Goedekers is terrible, but is Polished.com any better? I think not. Anyway, they sell appliances, home goods, and furniture. The big news Friday was that Morgan Dempsey Capital Management, a huge shareholder in the company, filed an SC 13D with the SEC that said the following:
"The Reporting Persons believe that the Common Stock and Warrants are undervalued. The Reporting Persons base this conclusion principally on representations made in the Corporation's Form 10-K for fiscal year 2021 as filed on March 31, 2022, and the Form 10-Q for the first fiscal quarter of 2022 as filed on May 16, 2022, with both filings interpreted in light of the additional information provided in the Corporation's Form 8-K, Item 8.01, as filed on December 27, 2022..."
So they think they're undervalued. OK.
But then they went on to say:
"Within the past 10 business days, the Reporting Persons have reached a research conclusion and believe that, as a result of their ongoing analysis, the ideal way to optimize value for all shareholders in the current environment is a prompt sale of the Corporation to a strategic or financial acquirer in a private-market context. Specifically, the Reporting Persons have come to doubt that the public equity markets will value the Corporation's securities fairly in light of the Corporation's disclosures between August 16, 2022 and January 19, 2023, even if and when the Corporation files the heretofore delayed Forms 10-Q and its Form 10-K for 2022. The Reporting Persons therefore urge the Corporation to engage a well-regarded investment bank to solicit offers that will establish and then realize the fairest value for shareholders given the uncertain financial market and macroeconomic circumstances extant at this time."
So, the last 10-Q the company filed was in May of 2022. They are kind of late for the 2nd and 3rd quarters of 2022, and they may even miss the deadline for the year ending 10-K. That certainly doesn't look good. Morgan Dempsey talks about disclosures the company has made between August 16, 2022 and January 19, 2023. Those disclosures are certainly very interesting. You would think a company that hasn't been timely with their SEC filings is a company in trouble, and their stock price would certainly indicate this. The bear market has been rough on a lot of companies, but these guys earlier in 2021 were in the mid-teens. A couple of months ago they traded as low as $0.42.
But are they in trouble?
The disclosures in various 8-Ks the company filed from August of last year to the present would indicate that business is good. The company said in their August 15, 2022 press release announcing their inability to file their 10-Q on time:
- For the second quarter 2022, the Company expects to report preliminary net sales of $145 to $150 million.
- The Company now expects low double-digit net sales growth in fiscal year 2022.
- The Company’s performance remains strong, and it continues to expect profitable growth through the remainder of fiscal year 2022 and beyond.
But wait, there's more
Then, on October 18, 2022 they dropped a bombshell 8-K.
"[The company] announced that on October 12, 2022, Albert Fouerti, Chief Executive Officer and President, and Elie Fouerti, Chief Operating Officer, informed the Company of their resignations, effective October 14, 2022. The Company also announced that on October 14, 2022, Maria Johnson, Chief Financial Officer and Secretary, informed the Company of her resignation, effective immediately."
And from the same 8-K they made the following pronouncement:
"Polished announced on August 15, 2022 that it filed a Form 12b-25 with the U.S. Securities and Exchange Commission (“SEC”) due to its inability to file its Form 10-Q for its second quarter of fiscal year 2022, which ended June 30, 2022. As noted in the Form 12b-25, the Board’s Audit Committee, with the assistance of independent legal counsel and consultants, is carrying out an internal investigation regarding certain allegations made by certain former employees related to the Company’s business operations."
This is all starting to sound like a corporate soap opera. But what's interesting to me here is that the resignations for the three executives were effective October 14, 2022, and the above statement regarding the investigation spoke of former employees but was dated October 15, 2022.
Does that mean that the statements about their business expectations from the press release dated August 15, 2022 were inaccurate? It's unclear at this point. Very weird.
Then, they put out yet another bombshell press release on December 12, 2022. Their auditor resigned, and they reached a settlement with their former CEO, in which the CEO owed the company money. It also said:
"In terms of outlook, the Company no longer expects to hit the top-line and bottom-line guidance set forth by former management in prior statements. In addition to challenges associated with this year’s management change and internal investigation, the Company has been impacted by the same economic headwinds and margin pressures facing other high-ticket consumer discretionary companies. With this context in mind, the Board and new management retain high conviction in Polished’s go-forward ability to grow profitability and seize on unique positioning in the robust U.S. home appliances market."
They noted in a footnote that the prior statements were from August 15, 2022.
So, yeah, I guess those prior statements were inaccurate.
The stock has understandably taken a tumble as all of this played out. The chart pretty much speaks for itself. But if you look really really closely you can see a spike in volume last Friday the 27th of January. It was up 55% at the close on the SC 13D filing news and the company's response. The company put out a PR Friday morning that said among other things:
"Jefferies LLC is Acting as Financial Advisor Following Private Expressions of Interest in Acquiring the Company" and "Polished is Open to All Pathways to Maximizing Value for Shareholders, Including a Sale of the Company "
One potential problem I see with this stock is that the short shares availability is still quite high and the fee and rebate rates are low. Usually when you see a stock that has been beaten down this far you also see relatively few shares available to short and they have punitive fee and rebate rates. But not here. That means it will be relatively cheap and easy for someone to limit any upside. I'm not saying they will do this by any means, but they could.
If you look at the financials for this company, you'll see that they look pretty good. Undervalued even as Morgan Dempsey Capital Management says. The problem is that all of this is questionable and subject to restatement. I think Morgan Dempsey may be right when they said they "come to doubt that the public equity markets will value the Corporation's securities fairly in light of the Corporation's disclosures."
I don't think it's worth the risk.