Shares of Eastman Kodak (KODK -0.85%) surged on Monday after a Securities and Exchange Commission (SEC) filing revealed hedge fund D.E. Shaw had purchased a 5.2% stake in the embattled company. As of 11:33 a.m. EDT, Kodak's stock was up 30% after rising as much as 65% earlier in the day.
D.E. Shaw purchased more than 3.9 million Kodak shares, currently valued at roughly $30 million. The investment firm's stake is said to be passive in nature.
It's important to note that D.E. Shaw uses both quantitative and qualitative trading strategies, so the investments they make may not necessarily suggest a specific view of a business's fundamental value or future prospects. Still, D.E. Shaw is a powerful force in the global financial markets, and investors take notice when it discloses a new position. The firm oversees approximately $50 billion in assets.
It's not clear why D.E. Shaw built a position in Kodak, which is currently beset with a host of problems.
Kodak's stock price soared in late July after it was awarded a $765 million Defense Production Act loan, which was intended to help it launch a new division that would manufacture pharmaceutical supplies deemed vital in the fight against COVID-19. However, its stock plunged soon thereafter, when the SEC began investigating Kodak for improper disclosures related to the loan, as well as possible insider trading activity. Investors have also criticized the company's questionable stock options grant to executive chairman Jim Continenza, which occurred only a short time before the loan was announced.
The loan proceeds are currently being withheld until Kodak is cleared of any wrongdoing, and it's uncertain if it will ever actually receive the funds. For these reasons, Kodak remains a high-risk stock, and investors may be better served by not buying alongside D.E. Shaw.