Shares of E*TRADE
The culprit was a secondary stock sale, in which Citadel Investment Group unloaded 172 million shares of the online discount broker. Forensic media reports, however, are dusting for the wrong fingerprints.
The common theory behind E*TRADE's sell-off is that as its largest stakeholder, Citadel may now begin unloading more of its stake. The sale wasn't dilutive -- since no new shares were issued -- but it does increase the public float. In other words, it may take a little more force on either side to move the stock in the future.
It's a fair thesis, but I think the bigger issue here is E*TRADE's diminishing viability as a buyout candidate. If Citadel felt that a buyout was coming soon at a decent premium, it wouldn't have sold off a chunk of its shares.
It's hard to buy E*TRADE as a buyout speculation now, even if it makes perfect sense for larger rivals TD AMERITRADE
This doesn't mean that E*TRADE needs to be bought out. It was the only one of the three largest discounters to top Wall Street's first-quarter estimates last month. Its days of red ink appear to be ending. Analysts see E*TRADE breaking even during the second half of this year, before bouncing back with a profit of $0.07 a share come 2011.
Accounts, client assets, and margin receivables all inched sequentially higher during this year's freshman quarter.
E*TRADE also has a new CEO in former Citigroup
Its recent move to gain shareholder approval for a reverse split -- following in the footsteps of AIG
Citadel's partial sale is shaking out the speculators, but hopefully it creates a dinner bell for investors.
Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.