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Kodak Stock Meltdown Exposes the Folly of Robinhood ‘Investors’

Last Updated September 23, 2020 2:19 PM
Andrew Packer
Last Updated September 23, 2020 2:19 PM
  • Kodak stock outright imploded on Monday.
  • The drop comes as a massive government loan faces increased scrutiny.
  • KODK shares are still elevated, but the sell-off might not be over.

Volatility has seen its Kodak moment in recent weeks. Eastman Kodak stock (NYSE: KODK), which surged from $2 per share to over $60 in late July, careened back toward $10 on Monday morning.

kodak stock
Down 30% on Monday alone, Kodak stock has taken shareholders on a bumpy ride. | Source: Yahoo Finance 

Loan Gridlock Threatens Kodak Stock Fever

The drop comes after the U.S. International Development Finance Corporation revealed it would review a $765 million loan  the government planned to give Eastman Kodak. The loan aimed to help the once-mighty photography company retool and start producing drug ingredients in the United States.

The news sent KODK shares soaring. The problem was they started flying before the announcement.

The DFC tweeted on Friday that the loan is on hold: 

kodak stock
One government agency is putting Kodak’s $765 million loan on hold until issues surrounding stock options are cleared up. | Source: Twitter 

The Securities and Exchange Commission (SEC) is scrutinizing the deal, too, with an eye towards records of stock option grants . A large number of stock options were granted as close as a day before the deal , raising concerns that executives at Eastman Kodak set themselves up for a massive payday as shares surged nearly thirty-fold.

Robinhood Traders Joined the Fray – Now They’re About to Pay

Company insiders may have thought the deal would give the stock price a sizable boost. They probably never imagined how massive that boost would be.

KODK’s surge was magnified by headline-chasing retail traders. Data from Robintrack shows that less than 9,000 Robinhood accounts held Eastman Kodak shares before the deal was announced.

After the deal announcement? That number exploded to over 120,000 . That’s a considerable number of individual accounts owning a single small-cap stock.

kodak stock price
As the deal was announced, retail traders rushed into Kodak shares, pushing them from $2 to $60 in mere days. | Source: Robintrack 

Unsurprisingly, KODK ownership waned as shares suffered an 80% tumble from their $60 peak. Even so, the company still ranks 82nd in popularity on the retail trading app. More Robinhood users own Kodak stock than other retail favorites like Peloton, Zoom, and Beyond Meat.

Where will Kodak stock go from here? Today’s plunge put shares about on par with the deal itself in terms of market cap . Should the deal fall through, investors could see KODK drop back to $2.

And if the SEC brings criminal charges against executives, the stock price could crash even harder, bringing the company perilously close to bankruptcy.

Until this controversy is settled, this risks becoming another incident where short-term greed leaves Robinhood traders holding an empty bag.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.