In the past week, Blue Wave Investments (NYSE: BLW) has seen its stock price plummet, and it’s still trading in the $5.30 range, less than half the price of the benchmark index, the S&P 500 index, which is trading at more than 17 times earnings.
Blue Wave has a long history of being a blue-chip stock, and a few of its major investments are among the biggest in the industry.
But in recent months, the company has been hit by a number of recent problems that have put it in a precarious position.
“As a fund manager, I can’t tell you how many times I’ve had to look at our balance sheet, or the company’s books, to see that we’re in this position,” said Brian Pritchard, a portfolio manager at BlackRock Inc. (NYSE :BLK), which manages $5 billion in assets.
As the Blue Waves’ stock price has declined, Pritkind has seen his portfolio shrink.
The fund has lost $4.6 billion in value over the past 12 months, a figure that’s only going to grow in the years ahead, he said.
BlackRock’s portfolio has lost almost $30 billion over the same time period, but Pritchers view it more as a proxy for the company.
“If you look at the performance of the S &K and Blue Wave stocks, the difference is quite significant,” he said, adding that the portfolio is not an ideal investment because it does not provide exposure to the entire industry.
The biggest problem, Priesditt said, has been that Blue Wave hasn’t kept up with its growth.
“It’s a pretty basic pattern: The market gets better and better and worse and worse.
If you look back at Blue Wave, it has not seen that growth in any of its long-term funds,” he added.
Blue wave’s problems have been compounded by the fact that BlueWave has not had enough capital to grow its holdings.
The Blue Wave Investment Corp. (BLW) stock portfolio grew only 7.7% in the last year, according to FactSet data.
The firm has borrowed about $100 million to invest in new businesses since 2011, but has yet to find that cash to invest.
BlueWave’s current debt levels are a little higher than some other funds, but it has had to borrow more money than it needs to to grow, Prisons said.
Priesdick has a few ideas for the fund to improve its portfolio.
“We could put a lot of capital into infrastructure, which would allow us to invest more in research and development, but that’s not the only thing we could do,” he suggested.
A few weeks ago, BlueWave announced that it would be raising $100 billion in new debt through its Series D financing.
The $100-billion deal has been viewed by some investors as a possible way to turn BlueWave around, but other analysts have warned that it could hurt the firm’s ability to continue to grow.
“This new financing will not be sufficient to turn the BlueWave fund around, and will only exacerbate the problems that the fund faces in the short- and medium-term,” wrote James W. O’Neill, chief investment officer at Blackrock, in a research note.
Bluewave will be required to make more capital available for capital expenditures in order to grow the fund.
“BlueWave may have been able to attract capital to the fund, but there are likely to be other sources of capital to be found, and this infusion of capital could result in BlueWave failing to meet its capital targets for the foreseeable future,” he wrote.
Meanwhile, Bluewave has struggled to find investors who want to invest their money into the fund after years of bad publicity and public criticism.
It’s hard to say what, if any, positive effects the news of the Series D deal could have on the fund’s prospects.
“I think the stock market is a terrible predictor of performance, and the fact it’s a stock market means it’s going to be volatile,” Priesds said.
“You can’t just say the stock will go up and you won’t be disappointed.”
The firm is also grappling with some tough decisions about how to spend its money.
BlueWave announced plans to cut the salaries of about 2,000 employees over the next five years to reduce its operating expenses, but the company hasn’t said how many jobs will be cut or whether the cuts will affect the fund as a whole.
The cuts have already caused a rift within the company, with some executives claiming that they were forced to make the decisions.
BlueWaves CEO Jim Wilson said in a statement that he plans to continue his leadership role in the fund and will “continue to seek new opportunities for BlueWave to make a positive difference in our community.”
A new round of financing could help boost BlueWave stock