Why did Grenville drop 20%? Are we Triggering Stop Losses Now?

My First Tradestops Alerts Trigger in time for the Friday File -- Four Sells and some updates

By Travis Johnson, Stock Gumshoe, August 21, 2015

It’s been a heckuva week, eh? I have no idea whether this is really the “capitulation” washout that so many investing pundits have been looking for, or whether we’ll keep falling on Monday or will bounce back after the week ended so roughly, but I do have a couple thoughts to share with you about some falling stocks… and, thanks to the stop loss strategy I started implementing last week, some sales in my personal portfolio and a few updates on stop loss “targets” among stocks that I cover for the Irregulars.

First, a look at a little company in our Gumshoe universe that reported this week and got clobbered. Grenville Strategic Royalty (GRC.V, GRVFF) is a company I invested in over the Winter, a small speculation on an appealing business model — they finance small and medium-sized businesses by buying gross sales royalties from them, so they end up having a revenue stream that’s fairly similar to what a franchise business would get (ie, what McDonald’s would earn from each of their franchise owners), about 3-4% of gross sales.

I also wrote about them recently when profiling a couple odd little “bank” type companies (the other being First Mining Finance, which is also down sharply — though as an extremely early stage mining rollup, that’s no surprise and massive volatility should be expected from that one for a long time), and the business seemed to be developing pretty well…

… so why did the shares drop 20% (a little more now, actually) after they announced earnings this week?

Well, there could be many reasons, there was one substantial impairment reported in the quarter (meaning they’re writing down the value of one of their royalty deals because it’s very likely to not be collectable — presumably because of problems with the underlying business)… but there was also one very profitable exit that happened just after the quarter that more than made up for that impairment, so it seems unlikely that the one problem investment would make investors revise their expectations for the company that drastically.

But really, it’s not just one — I think the worry is what looks like at least the first signs of an overall slipping of credit quality, and that does concern me… the company is now just over a year old, and they’ve now had two substantial impairments and, ...

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