Hampton Roads Bankshares (HMPR) A great play for retail investors?

All stocks are speculative in nature.   Whether its a penny stock with 100,000,000 or more shares issued and an accumulated deficit in the hundreds of millions, or a profitable dividend paying company included on a major index. 

Speculation centers around the share price.  Just because a company has never achieved positive earnings doesn't mean its share price can't soar.  And likewise just because a company has a history of profitable operations and perhaps even pays dividends, that doesn't mean that its PPS can't fall. 

For my own part I view speculation as being a matter of degree.  A company with actual profits I view as being less speculative than a company that is currently losing money.   But from my experience its typically companies that have the worst histories in terms of bottom line performance that experience the biggest gains.  However those gains often evaporate within a very short period of time, often in just a few weeks or a couple months, and sometimes in mere days.

The difficulties for retail investors are numerous when dealing with highly speculative stocks.  The volatility can be both exhilarating and devastating, with retailers almost feeling the need to babysit their investment, watching it in real time every trading day.  That kind of attention isn't easy, even in our hyper-connected world.  And it plays on people's emotions in classic market fashion, alternately triggering greed and fear.

Let's say its a penny stock that was bought at 10 cents that goes up to $1.00 for an eye popping 1,000% gain.  Imagine you bought 50,000 shares at a dime for total investment of $5,000 + brokerage fees.  The stock goes to a buck meaning that $5,000 has turned into $50,000....But what if you're in a meeting, or at an appointment when it hits that dollar mark.  And what if instead of closing at $1.00 it finishes at 85 cents for the trading day.  You still have an awesome gain if you sell for 85 cents, but instead of getting $50,000 for your shares you have to be willing to "settle" for a mere $42,500.  

Now let me be clear here, turning $5,000 into $42,500 is awesome, but $42,500 isn't $50,000....and its greed that so often nabs retailers and leaves them holding the bag, even when its overflowing with profits.  

Which brings me to Hampton Roads Bankshares, HMPR.  Yes I know my musings have a lot of preamble, but that's a function of my age.  I'm a long winded old bastid...un vieux schnook comme on dit en français.  

If you've been tracking this nearly invisible and pathetic little blog, or if you followed me over at SeekingAlpha then you should know my style.  I'm not about to start pounding the table screaming buy Buy BUY with lots of hyperbole about "OUT SIZED GROWTH POTENTIAL" or any of that other crap, because that's exactly what it is....CRAP.

HMPR represents a speculative investment for me, but comparatively speaking I consider it much less risky than many companies out there because it has positive earnings.  

If you're looking for a stock with a big following with millions of shares trading each day, then you're not gonna like HMPR.  On stocktwits where I post as growacet you won't find thousands of users following HMPR like some cash burning speculative biotech.  There are only 70 or so IDs watching it. If you check the Yahoo Message boards for pumping and bashing, you'll see me...krill66 offering up an opinion every now and again, and one other user telling me I'm an idiot and that HMPR is a waste of time.  

As far as I'm aware there are no email blasting chop shops hyping it, or any stock promotion IR firms working to attract investors.  But that shouldn't come as a surprise.  When a company is losing money and is using its shares as capital to keep the lights on and pay salaries, then engaging in promotion makes a lot of sense.  A company like HMPR that has + earnings doesn't need to play those games.

Besides, as per Nasdaq's Site almost 65% of the outstanding shares are held by institutions.  

Those who read my most recent blog posting, Why short interest matters - The danger of betting against Dah Bears, will probably want to know the degree of short interest.  As per WSJ its not much, just 2.16 million or less than 3% of the outstanding, that number is current up to April 29th 2016.   

A note of caution though about the low short interest.  With 3 month average volume of just 120K or so per day, it doesn't take a lot of volume to push HMPR around.  The public float here is only about 77 million shares, and if a big player is looking to inject a little fear into retail longs, then raiding 1,000,000 shares and selling them short could have a big negative impact on the PPS.  I don't think the chances of that happening are big, but I do think its possible.

As regular readers know (all 3 of you) I'm not big on fundamentals, viewing it as old data which is already priced into the stock.  While past performance does provide a guideline its no guarantee about the future.  As I noted HMPR is earnings positive with a significant number of shares in the hands of institutions.  

What do shareholders have to look forward to going forward?  

There's a pending merger with another Virginia based bank, Xenith Bankshares, that was announced this past February. (NEWS STORY HERE).  Of course that news is months old and constitutes part of the fundamental picture, so I assume it to be already priced in.

In my opinion the greatest potential for HMPR rests with the possibility of a return to paying dividends.  HMPR used to pay a quarterly dividend, but that ended in 2009 in the wake of the Great Financial Crisis.  From the GFC forward HMPR entered survival mode, suspending dividend payments and effecting a reverse split.  

Even without a dividend HMPR offers great risk vs reward potential to these eyes.  After years of rate cutting we have finally entered a period of climbing interest rates in my opinion, and I consider the banking/financial sector to have excellent prospects for growth going forward.  Interest rates have been so low for so long that many US regional banks like Hampton Roads had to struggle to survive, and many didn't.  

In my opinion HMPR has emerged from that cloudy period with the return to positive earnings and the lifting of regulatory restrictions which prevented them from paying shareholders in the form of dividend distributions.  There is no assurance that they will once again start with distributions, but with the restriction removed its at least possible now.  

I will end this blog posting with the chart.  I consider a long flat base to be an excellent indicator, and in my opinion the longer the base the better in terms of the potential for an eventual breakout.  This is a 5 year chart showing a 3+ year base pattern.  If it does play out and does break out from this base pattern it might not be for a while, but in the interim I don't think HMPR will see any wild swings downward.

As always take note of the disclaimer at the bottom.  I have been holding and buying HMPR for almost 3 years now so my opinions are extremely biased.  I eat my own cooking in other words, and sometimes I cook up masterpieces while other times I burn the food to a crisp.  Here's hoping HMPR is a slow cooked succulent delight.