Disclaimer: Damnit Jim, I'm a doctor, not a financial advisor. As we on r/carvstock have always counseled, it is important to do your own research. For the sake of transparency, I always link-cite my sources to get you started on that journey, but only you can take the first step.
I hope everyone got some rest this weekend, because this week is going to be active. After last week's explosive surge upward, we are entering a new phase. Sophisticated actors, corporate interests, and new factors are now in play. But the elemental principles remain unchanged, with some new additions. I’m dropping this at zero dark to give us all time to review each piece before Monday launches.
Microfloat Scale (Size - Offerings) + SI% (short volume / free float) + Delta Valuation (Fundamental Value - Current Price) + Popular Volume Surge + Keynesian Beauty Contest = Share Price
Microfloat Scale: The conquerable iceberg
At the time of writing, one can find float estimates ranging from 450K to 900K, depending on float calculation methodology. This is why such wide ranges of SI% are seen in different sources, more on that below. Regardless, in the context of the whole market, it is one of the smallest there is: between the 18th and 33rd smallest, to be exact..
I’ve listed microfloat first because it is the rarest and most important feature of this situation. As described below, surge of retail interest in the era of online investment communities and trading apps targeting a high SI% stock is new-ish in 2021, but it is unprecedented in a stock with such a small float.
While the rational goal of a retail investor was to conquer the float and control the bid/ask in squeezes like GME and AMC, their float size made it impossible to outcompete large scale institutional capital. But with microfloats, the definition of “whale” can be more easily democratized. It is easier for the average Joe to own 10% of 100 shares than 1,000. In CARV, your 1,000 locked down shares (in a float of 900K) carry far more weight than they do than they do in AMC’s present float of 448M. On a global scale, there is a finite number of retail investors with the capital and risk tolerance to lock down shares and wait for control; it takes far fewer of those entrenched holders to conquer a small float like CARV.
Of course, there exists a well known risk to the float size which commonly occurs in squeezes: an offering—the company attempting to raise capital by issuing additional shares in the setting of elevated share price. We saw this in both AMC and GME squeezes, and it’s fair to assume we will see it here. Normally 81% insider holdings is a bullish sign of confidence, but could they all attempt to cash in on the rally?
Let’s break down the theoretical worst case scenario: simultaneous total liquidation of all insider holdings (which is not actually possible as much of the outstanding is tied up in equity compensation packages and other restricted shares) and Institutional positions (just 781,428 common shares) and offering of the maximum authorized shares (in this case, the 10-K authorizes up to 10M commons, or 6.53M on top of the 3.47M outstanding). That equates to a maximum increase of 188%, making it the 537th smallest outstanding in the market—still a miniscule iceberg. For context, the GME squeeze happened with 70M outstanding, and AMC with 85M-450M.
In addition to only slightly increasing the iceberg size, this offering would also strengthen the balance sheet, raising (if it happened at the current share price) $172.2M cash. This kind of strengthening is what caused GME to actually continue its rally after raising $1.1B in an offering. Therefore, a squeeze surviving an offering means its demand must outstrip supply—and for reasons below, that seems likely.
Delta Valuation: By peer comparison, a $57.09-$232.42 price target is based on the fundamentals alone
The concept of a $90 price target is widely circulated, and our initial poll voted it the most likely valuation (this poll was since taken down, on advice that it could be used against retail investors). Regardless, it is worth discussing the rationale for that valuation.
Probably the clearest comparator for CARV in the publicly-traded MDI sector is BYFC. It was similarly founded in the mid-1940s, and is completing a merger with City First Bank, calling itself the largest Black-led MDI (this is debatable).
CARV's most recent balance sheet is its 10-K, filed 6/29 documenting its status as of 3/31. Showing significant strength, this was a major catalyst for its rise--it documents assets worth $676.7M, shareholder equity $52.3M, debt $53.23M, and cash and cash equivalents $75.59M. Price/sales comes out to 1.64, price/book 1.38.
BYFC's corresponding 3/31 balance sheet is documented in its 8-K filed 5/3, providing the best comparator: assets $479.6M, shareholder equity $45.08M, debt $113.56M, cash and cash equivalents $88.16M. Price/sales comes out to 5.68, price/book 4.30.
CARV currently trades at a market cap of $91.9M, and BYFC at $233.1M (i.e. BYFC is trading at 2.54x CARV’s present valuation). Yet BYFC's assets are worth 0.71x, debt 2.13x, cash 1.17x, shareholder equity 0.86x, PSR 3.46x, PBR 3.11x. By most of these most basic measures, CARV actually is more valuable: by assets 1.41x, debt 2.13x, cash 0.85x (this is the exception, BYFC has slightly more cash), shareholder equity 1.16x, PSR 3.46x, and PBR 3.11x (note that debt, PSR, and PBR are considered better when lower). Thus, in this rubric CARV falls somewhere between 0.85-3.46x as valuable as BYFC, which translates by market cap into $198.1M-$806.5M, and share price $57.09-$232.42.
Now look, clearly bank valuation is an enormously complex topic requiring subspecialty education, and this is a highly reductive view. One could cherry pick less appealing statistics like EPS (CARV -$1.14 vs BYFC -$0.02) or more appealing ones like revenue (CARV $22.18M vs $13.06M) to make different arguments. The idea is that these are very comparable institutions subject to the same market forces and the topline numbers are if more than favorable for CARV, currently trading at far less.
The concept of a valuation target of $90 is an approximation of the above general idea, but assumes not a single cent of value from any of the other appealing features of this trade (e.g. microfloat squeeze potential or supply-demand scarcity). The point is that there is a delta between CARV's current valuation ($26.50) and this range ($57.09-$232.42): it is not only substantial, but based purely on math alone, ignoring trendier concepts like surging demand for a microfloat squeeze.
SI%: The battle continues
As of this weekend, the both the shorts and longs are heavily entrenched, and thus this part of the equation remains active. Finviz shows 0 shares available to borrow (take that with a grain of salt, as other sources like IBD have yet to update.) S3 cites 346.02K shorted (+10K), 76.51% (+2.98%), 9.83% fee, with shorts down $4M MTM losses this year. Ortex cites 53.93% (+1.47%) 583K shorted, 12.5-259.5% borrow fee.
For new investors, FINRA publishes official short numbers bimonthly, which are roughly a week out of date; these are the numbers which make up the lists you see on places like Marketwatch and Finviz. The last update, which triggered a lot of interest in CARV, was published 6/24 and references settlement date 6/15; at that time 272,367 shorts.
Upcoming FINRA short data comes out Monday evening, which will reflect settlement date 6/30 NASDAQ Short Interest Publication Schedule. According to posts here on r/carvstock about SI from the corresponding settlement date of 6/30, Ortex showed 80.95%/675K CTB 7.6-13.9%, and S3 showed 75.83%/303K CTB 8.3%. As such, the short volume is likely to have increased somewhat.
It remains unclear what effect the Hedgehog liquidation will have on float calculation methodology, but it appears to have increased the float to roughly 900K (depending on methodology). Thus, as SI% = shares shorted / free float, and both the numerator and denominator have increased, it's unclear which direction this will go. It is possible SI% action in other tickers will displace it from #1 on the SI% lists, but regardless it remains extraordinarily high--an attractive proposition to new investors that adds to upward potential. And most important of all, SI% is just icing on an already delicious cake--even if it were 0%, the remainder of the equation still stands.
Popular Volume Surge
The exponential trajectory of popularity-related volume is so obvious it is almost absurd to write. An average volume of 400,000 peaking at 95M on Thursday represents a 23,650% increase in trading, turning over the float almost 100-200x (depending on float calculation methodology).
Interestingly, moderating this community grants access to another unique indicator--r/carvstock traffic. Tabulating the data Saturday night, we saw 30,084 pageviews (3,726) last week, most of which spiked after Thursday's surge. Last week, membership rose from 43 to 379, a 781% increase. Peak views on 7/8 represent a 1,051% (1,273-->14,649) increase in traffic volume compared to the week before.
Similarly, over the past week quiverquant documented a 463% increase in wsb mentions, and hedgesocial showed a similar increase of 451%. Similarly, Google Trends data showed impressive spikes in searches for NASDAQ:CARV peaking on both 7/8 and 7/9, interestingly with the heaviest traffic (by nearly two-fold) originating from West Palm Beach, FL (what that means, I have no idea). And I don’t even want touch the roughly 900% increase in ST message volume this week—that place is a mess.
The point, of course, is that popularity (and by extension, demand) is surging in the face of fixed supply. And with each further green day, the pace of tweets, site visits, TikTok posts, Twitch feeds, and good old fashioned news articles will only accelerate.
Keynesian Beauty Contest: Unmeasurability of the scarcity principle
Retail traders have access to the market in unprecedented ways, and being able to communicate about it openly, and now account for 10% of all trades--probably more for stocks like this whose recent catalysts were born online in places like r/carvstock, which may be why CARV represents the first time (I can identify at least) that the confluence of surging volume popularity in a microfloat coexisted at this scale. This black swan/perfect storm of features opens the possibility that, if retail is able to conquer the float, we may trigger a Keynesian Beauty Contest.
KBC is a scenario in which value is divorced from what an investor thinks something is worth, but rather driven by what that investor thinks others think it is worth. Currently, CARV’s popularity is derived from its value (as above, at least $90, based on peer valuation), but in the KBC, this is flipped—the value is derived from its popularity. On a practical level, if like-minded retail traders control a large enough segment of float, and determine value based on what they think others will think, then the price shall reflect emergent opinion of the group rather than underlying value.
Outside of game theory, this is known as the scarcity principle, and influences the price of everything from gold to bitcoin (resources of scarcity without underlying utility but deemed valuable by consensus). The price of a good, which has low supply and high demand, rises to meet the expected demand. This unmeasurable factor in the equation for a stock with 3.47M outstanding and 900K float may be the most powerful driver of price there is.
TLDR: This is a perfect storm of rare events. The microfloat is small enough for retail to conquer and will tolerate even theoretically maximized offerings. SI% remains entrenched, fueling explosive growth. A fundamental valuation (assuming no value from microfloat squeeze demand or scarcity) ranges $57-$232. Popular volume demand is up tens of thousands of percent, and may soon invoke the scarcity principle. And most intriguingly, the unprecedented nature of this black swan alignment of forces may activate the Keynesian Beauty Contest—allowing entrenched retail holders to name our price.
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