B. Riley's Balance Sheet Is In Bad Shape With A Risky Solvency Position (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• This article exposes balance sheet risks to B. Riley which occur before the claims of equity investors, preferred equity investors and lenders.
• RILY's core business is in a risky solvency position; excluding the impact of highly volatile trading revenue streams, RILY has negative EBIT levels, so net interest expense is not covered.
• The company has a negative net assets positions excluding goodwill. Yet, the stock trades above book value. This implies further downside ahead.
• Short interest is high, but there was already a short squeeze in late January 2024, which I believe reduces the chances of another short squeeze until new lows are made. However, the short borrow fees are too high to initiate fresh short sells.
• The balance sheet problems in B. Riley are structural. Hence, I believe it is highly unlikely that Q4 earnings would lead to any kind of sustained reversal.

Read the full article here.