Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: The roller-coaster ride for Polypore International
So what: Polypore shares were crushed yesterday after DA Davidson downgraded the stock to underperform and Axiom Securities initiated the stock with a sell rating and a $26 price target. Today, Wunderlich also initiated the stock with a sell rating and a $30 price target citing the belief that the market hadn't factored in the impact of warm weather on the lead acid battery market and the start-up issues in the electric/hybrid automobile sector.
Now what: As if that wasn't enough, Korea's LG Chem said yesterday it was going to enter the battery separator business and essentially become a direct competitor to Polypore -- perhaps the primary reason for yesterday's somersault. Despite the drop, some analysts have come to Polypore's defense and claimed the drop was overdone, including RW Baird, Stifel Nicolaus, Needham, and Wedbush Securities. As for me, I noted just four weeks ago that Polypore's large short position (18% of float) and heavy insider selling would be reason enough for most investors to stay away -- and as of now that looks to be a great call. I continue to see little reason to buy into Polypore, especially with its revenue stream potentially at risk from a new competitor.
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