Log in
  

Gallery Exec Resigns as Broker Extols Stock

18 Sep, 2007 By: Erik Gruenwedel



Financially besieged Movie Gallery Inc. asked EVP and chief development officer Keith Cousins to resign, effective Sept. 14, according to a regulatory filing.

Cousins joined Gallery in 1998 as senior director of development, planning and analysis, and was promoted three times, eventually to his current position in early 2006.

The Dothan, Ala.-based No. 2 video rental chain continues to restructure as it shores up credit agreements (while missing interest payments) and pursues strategic options, including the sale of the company and/or bankruptcy.

Earlier this month, Gallery said it had signed a forbearance agreement until Sept. 30 with holders of its 11% senior notes (bonds). The notes are due in 2012.

Gallery has struggled since it paid $1.1 billion to acquire then No. 2 Hollywood Video after outbidding No. 1 Blockbuster Inc. in 2005.

Separately, those unfamiliar with the Latin phrase “Caveat Emptor,” or “let the buyer beware,” could learn the hard way if seeking to make a quick buck on Gallery's stock.

Scottrade, a St. Louis-based discount brokerage firm, Sept. 18 ran an online ad of its SmartText market guide that appeared as an endorsement for the purchase of Gallery stock. The stock traded that day about 50 cents per share.

The ad states that Gallery's stock was trading 13 times above its moving average, which it considered a bullish trend. It also said the moving average, which is generally used to measure a stock's momentum either positively or negatively, was rising and therefore suggested “that there has been buying interest in this stock.”

Edward Woo, media analyst with Wedbush Morgan Securities in Los Angeles, said that even if the information is technically correct, the underlying financial fundamentals for Gallery are that of a company on the brink of bankruptcy.

Wedbush is an analyst of record for Movie Gallery stock.

“They are essentially a penny stock,” Woo said. “It takes just a little bit of movement to have huge percentage gains.”

Woo said there is a lot of risk involved when buying a depressed company's stock, a strategy he described as blatant gambling. He said buying Gallery shares for around 50 cents in the hopes you could sell it for $1 is shortsighted.

“Most likely this company is going to end up in bankruptcy, and there will be no value to the equity holders,” Woo said. “There is no business reason why you would do it.”

Scottrade, in fine print, claimed the ad should not be considered an endorsement of a particular stock, and said it assumed no responsibility for the accuracy of its data.

Gallery are that of a company on the brink of bankruptcy.

Wedbush is an analyst of record for Movie Gallery stock.

“They are essentially a penny stock,” Woo said. “It takes just a little bit of movement to have huge percentage gains.”

Woo said there is a lot of risk involved when buying a depressed company's stock, a strategy he described as blatant gambling. He said buying Gallery shares for around 50 cents in the hopes you could sell it for $1 is shortsighted.

“Most likely this company is going to end up in bankruptcy, and there will be no value to the equity holders,” Woo said. “There is no business reason why you would do it.”

Scottrade, in fine print, claimed the ad should not be considered an endorsement of a particular stock, and said it assumed no responsibility for the accuracy of its data.

Add Comment