Blockchain stock Longfin Corp. (LFIN) soared by nearly 65% on Thursday, but the question concerning this name revolves around time frame. Should you own it? In my opinion: "Unequivocally, no."
I'm not going to beat around the bush. This company isn't just a red flag to me, it's the factory that produces all of the red flags that we see in the market. Heck, maybe even around the world.
This isn't the first time I've expressed my reservations about Longfin (read here and here). If you don't stop and ask yourself why both the chief financial officer and chief operating officer left the company prior to the stock's recent IPO, then investing might not be for you. Stick to trading. There's a difference -- a very big difference -- and that's about time frame.
For folks who scalp intraday or will carry momentum names overnight or for a few days, LFIN is a fantastic trading vehicle. After all, trading vehicles don't need any fundamental merits in the shortest of time frames; they thrive on the "Greater Fool Theory."
The float on this name is tiny, with a large short interest, so a short squeeze was absolutely in play Thursday. We saw the same things push the stock to astronomical levels before. That could happen again, but I don't think it will -- at least not as high. The players are a little smarter this time around.
It's not often I wholeheartedly agree with Citron Research, but in this case, I do:
Take 11 minutes and watch the interview with Longfin CEO Venkat Meenavalli on CNBC Wednesday. There's so much redirection that both Google Maps and Waze probably got lost trying to follow what he was saying.
Meenavalli focused on blame and hid behind Longfin's specific type of regulatory filing. In my view, everything that I heard stated about the filings, the stock ownership, the business disclosure, etc., focused on plausible deniability.
How this stock slipped into the Russell 2000 index is beyond me. How it actually opened for trading with all the weaknesses in its filings is also beyond me. I doubt we'll see the firm expand much beyond three people in their New York office. Perhaps it will get to five.
Still, LFIN rallied Thursday, apparently on the news that Meenavalli won't sell his shares for three years. That's probably a good thing, considering he owns a big chunk of LFIN's float.
The CEO also talked about going after Citron and Longfin short-sellers, yet Meenavalli admitted that his company isn't worth $5 billion or $10 billion and that the market will decide LFIN's true value.
So, what's the correct approach if a company is overvalued? Easy: Sell it.
The bottom line here is that I see LFIN as basically worthless, but that view stems mostly from a lack of results and information. I'm guessing that the company will maintain the absolute minimum filings required by regulations.
Normally, I'd expect a start-up to try a secondary offering if its price surges, but I get the feeling that Meenavilli doesn't want the attention that would come with it (and that he'll consider what he has already as a major victory).
In my view, the move higher Thursday was driven by day traders and chatrooms playing the Greater Fool Theory. There isn't a realization that the company's valuation is depressed; in fact, a $550 million market cap is probably about $500 million too much (and I'm probably being generous here).
So, feel free to trade this one intraday if you're the aggressive-trader type. But I see no reason to include this name in your portfolio for any reason.