I am dealing with one of the most befuddling positions of my career, a position long CRD.A, short CRD.B. I am recommending you do the same as the only risk is purely quotational (and if you get squeezed down the line). I believe this is substantively different from the earlier short recommendation of CRD. B as this recommends a long/short position with no view toward the fundamentals of the company, and the spread has blow out even more since. I put on the position I believe with an initial spread of about $5 per share, and it has now blown out to over $8 per share. CRD.A is trading at $6.66 while CRD.B is at $14.7. They have the same economic interest in the company, but the B shares have the vote. The B shares trade about 2.5x the volume of the A shares. This relationship is absolutely crazy on any evaluation. This is WAY beyond historic spreads for the two securities. Just a few months ago the spread was about $1.
In looking at how on Earth this could happen, I have come to a couple of conclusions, each of which are temporary:
The company reported good earnings growth last quarter – as a result the IBD crowd has latched onto this stock as a CANSLIM (high growth, low valuation) stock – a number of quant guys and program traders have shown up as Class B shareholders and they appear to be operating in the B shares. I have seen some technical newsletters recommending the B shares due to the “strength” (you know, the buy because it’s going up strategy) – they don’t even reference the A shares. Note that a previous, well done write up here recommended shorting the B shares outright due to its valuation and overstated growth outlook.
The Chairman made a foolish decision to publicly announce he was looking to sell 800,000 A shares. This has scared people away from buying.
I called the Company and had a brief conversation where I asked their opinion on the spread. The person I spoke with was apologetic and said they had been getting numerous calls from irate Class A shareholders. It wouldn’t surprise me if they tried to address this in the future.
Are you sure you want to close this position Crawford A/B Shares?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
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