Smart for Life (NASDAQ: SMFL) shares are surging and could continue to increase, but there is no good reason to buy them unless you are a short-seller closing out a position and getting ready to reposition for the next leg lower. The news surrounding this penny stock is a bottomless pit of reasons to sell, including a few notices from NASDAQ.
Smart for Life is in a Downward Spiral
Smart for Life has been in the crosshairs for years. Not only was the IPO overblown, issued at the peak of pantry-hoarding and inflationary pressure, but it was set up to fail. The IPO was sold in units that included warrants that put a cap on any upward movement and opened the door to significant dilution. Since then, the stock has plunged as close to 100% as a stock can due to reverse stock splits and the dilutive impact of share sales. The last report filed with the SEC is for Q4 2023, including a 930X increase in shares issued.
Why is NASDAQ sending notices to Smart for Life? For numerous reasons. The surge in the stock price was sparked by an 8-K current report outlining the shortcomings. They include failing to file a year-end report for 2023, failing to file a Q1 report for 2024, not holding an annual meeting in 2023, and a persistently low stock price. The company has completed its turnaround plan and restructuring, but there is no guarantee it will retain its listing, let alone remain solvent.
The best news in the 8-K is the company’s balance sheet. Including the impacts of restructuring and repositioning efforts, the company estimates shareholder equity at $2.5 to $6 million—enough to get the market’s attention but insufficient to alter the outlook. The last filing is not promising; revenue fell about 30% YOY, executive compensation is 75% of the net, and the operating loss is significantly larger than revenue. The balance sheet may have some equity, but how much is relative to what the company has lost? It is the real question, and it is a small figure.
Market Support Exists for Smart for Life: Don’t Count on it To Keep Shares Up
There is some market support for Smart for Life, a consumer staple stock, but not much. No analysts rate this stock, but a few institutions hold it. The latest data shows five holders commanding about 8% of the stock. Those include UBS Group, BNP Paribas, and Buckingham Strategic Wealth. Buckingham Strategic Wealth is a fiduciary, evidence-driven wealth advisor using peer-reviewed research to guide its decisions.
Insiders are listed as 30% owners, but this data may be faulty. Marketbeat.com tracks no insider activity since the IPO and only a single large sale by early investors. That was by Trilogy Capital Group late in 2022, shortly after the IPO.
Short-Covering is in Play for Smart-for-Life
Short-covering is in play with this stock. The latest short-interest data shows interest running hot near 15% and down 50% from the prior month. This activity helped put the bottom in the market ahead of the 8-K filing and set it up for short-squeeze, which is happening now. However, the squeeze put the market back to an attractive selling level, which is seen in the charts. It is likely that short-sellers are leaning into this pop and will drive the market back to its lows near $2.86 or lower. At this point, the best that investors might expect is for the company’s assets to be bought out, and the benefit of that is dubious.
