On October 13, 2015, Eros International, Plc (EROS), a major distributor and producer of Indian entertainment, held its inaugural Investor Day. The stock has been plunging ever since.
Source: FreeStockCharts.com
I have been tracking this stock ever more closely since the first big drop. I enjoy Bollywood flicks, Bhangra, and Indian pop music, so I am surprised I never heard of this company before. Sensing a buying opportunity, I have scrambled to play catch-up. I have searched and searched for news explaining the plunge. There are no explanatory SEC filings. In fact, the company just released news its reached 30 million registered users as of September 30th..something already announced during the Investor Day. I suspect this was a thinly veiled attempt at providing some kind of reassurance.
I have bugged friends and come up with nothing. Even on social media, I have found little to unfold the mystery of this plunge. I finally went back to the materials the company provided for its Investor Day. It was full of the bullish information one would expect on the company’s financials and market opportunity – no obvious blemishes.
Source: EROS
I watched a short video featuring an interview with founder and Chairman Kishore Lulla on CNBC just ahead of the Investor Day in New York City. The discussion barely touched on any headwinds for the company. Here are my notes:
- The three big things in India: movies, cricket, and religion. The music industry is part of the movie industry.
- Like the Netflix (NFLX) of India that owns almost all its own content.
- 30M registered users.
- Largest studio in India.
- Eros Now is like a combination of Spotify, iTunes, and Netflix.
- It is as if Disney and Time Warner combined to start Netflix.
- As an answer to the question “what happens when Netflix enters India next year?” – we are the gatekeeper.
So absent specific negative news, one has to assume “someone” knows something and is getting out of the way before the shoe drops. I have been very reluctant to dip a toe given the news vacuum. As regular readers know, I like to try short-term trades once a stock extends well beyond its outer Bollinger Band (BB). However, I was reticent even after EROS hit $15.34, a 24% loss from the previous day’s close and a full 5 points below the lower-BB. The bounce back to $17.89 is the classic reversal I like to catch in these situations.
Making me even more hesitant is that the stock has set-up like a classic short-selling play. If I had not been enticed by the seemingly strong fundamentals of this company, I would have seen the failure at the 50-day moving average on the heels of a major event as a bright red flag and the first trigger for a short. The high-volume breakdown below the 200DMA would have been the second trigger.
But NOW, if explanatory news remains elusive, then I have to assume from a technical standpoint that EROS could finally be good for a relief bounce at least back to 200DMA resistance as sellers finally get exhausted. Stay tuned…
Be careful out there!
Full disclosure: no positions
This *does* sound like a single big shareholder getting out (whereupon the price fall on heavy volume causes others to panic and sell, exacerbating the sell-off). Look for two things:
1) Did a lock-up period of some kind expire?
2) Is there a single large shareholder, institutional or insider?
Good points. If it were a lock-out, I sure would have expected to find that news. But I am on the case now!
Thank you for this. I am very interested to see if you have found anything more that can explain why..
Thanks!
I have found a reason and a method for trading the news. Haven’t had a chance to publish. Hopefully today!
Thanks for reading.