Palm Shares Present an Interesting Opportunity

Last night (Thursday September 17, 2009) after the close Palm, Inc. (NASDAQ:PALM), announced its quarterly results. The company beat the losses that Wall Street had anticipated and also generated more sales than had been projected. In today’s trading its shares fell by 4% because the company also announced that it was going to offer 16 million new shares in a secondary offering and that it was lowering its projections for its current quarter.

Upon checking Palm’s cash flow diagnostics on StockDiagnostics.com I discovered that Palm currently has StockDiagnostics’ lowest OPS Ranking of 8. The Company’s OPS chart depicted that the company has generated negative operating cash flow for seven consecutive quarters. Palm also burned over $200 million of cash over its latest 12 months. I also checked out Palm’s current ratio (current assets/current liabilities) and found that it just slightly above 1.0. Thus, the fact that Palm is offering about $200 million of new shares in a secondary offering does not surprise me.

Even with Palm raising another $200 million of fresh capital I believe that it will be lucky to survive 2010. The probability is that it will be a bankruptcy candidate by 2011 because of its annualized $200 million burn rate and its $400 million in long term debt.

Palm is a textbook example of why investors, traders and speculators should be using StockDiagnostics.com OPS charts instead of technical charts to invest in stocks. Its technical chart pattern since it share price hit their lows in March of 2009 has been one of the market’s best.

Those who have been invested in, or who have been trading, Palm shares should be breathing a sigh of relief. If the market had not had a bear market rally for the ages off of the interim March bear market lows Palm shares likely would not have moved up by over 100% from their March 2009, lows. Without the share price increase and the increased overall liquidity in the stock market Palm would have been forced to sell more than twice as many shares or even worse may have been forced into bankruptcy.

The lesson that should be learned here is that investors should be using StockDiagnostics.com’s charts to monitor the cash flow of their holdings before they buy and hold or trade its shares by using technical analysis charts. Until its cash flow turns positive investors should avoid Palm shares like the plague and traders should not be establishing long positions and instead look for every technical opportunity to short Palm shares before the company goes out business. Next time those who have invested in Palm shares and have established long trading positions in Palm might not be so lucky.

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