buying, Papa John's, PZZA.Q, Tesla, TSLA.Q, SEC, lululemon, LULU.Q, CEO, shorting

A new CEO at Papa John’s (PZZA.Q) may signal a buying opportunity for clever and good boys

Shares of Mediterranean pie purveyor, Papa John’s (PZZA.Q), have seen a tremendous uptick in buying since the ouster of their former CEO, leading one to wonder if there is an upside to such reputational disembowelment.

On Sept. 29, 2019, it was announced that Elon Musk was forced to step down as the chairman of Tesla (TSLA.Q) by the Securities and Exchange Commission.

Because of errant tweets, Musk was charged with failing to follow established disclosure procedures for executives, and has since been forced to use a lawyer as an intermediary when he wishes to make his thoughts known online about sensitive topics.

“The total package of remedies and relief announced today are specifically designed to address the misconduct at issue by strengthening Tesla’s corporate governance and oversight in order to protect investors,” according to Stephanie Avakian, co-director of the SEC’s enforcement division.

But despite this emasculating hand-holding foisted on one of the capital markets’ most provocative serial tweeters, the company’s stock went on an impressive three month run into the new year after Musks’ forced resignation at the end of September.

Papa John's, PZZA.Q, Tesla, TSLA.Q, SEC, lululemon, LULU.Q, CEO, shorting
Courtesy of our friends at stockwatch.com

Granted, within a week of Musk’s resignation, the company’s stock lost USD$50 in value. Furthermore, in the new year, the company said was cutting three thousand jobs due to costly manufacturing dampened excitement for the company’s prospects, but such is life as a motorcar maker.

In early February of 2018, the CEO of Lululemon (LULU.Q) was also forced to resign after news of an inappropriate relationship with one of the company’s designers was revealed to the public.

Lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Mr. Potdevin fell short of these standards of conduct. The Board of Directors has immediately begun a search process for a proven and highly-experienced global Chief Executive Officer.

Again, despite the immediate backlash, the company’s stock seems to have suffered no worse for wear, having seen an incredible 164% increase since then.

Papa John's, PZZA.Q, Tesla, TSLA.Q, SEC, lululemon, LULU.Q, CEO, shorting, buying
Courtesy of our friends at stockwatch.com

Oh yes, dear reader, I can already hear your mewling protests now. I am certain your introduction to statistics professor could fill volumes on the differentiation between correlation and causation. I assure you, we are intimately familiar with this concept and not buying it.

But consider this: Are transfusions of new blood not inherently positive for patients stricken with a litany of mortal wounds and diseases? Does the body proper not crave sustenance and new material in the same way the mind thirsts for new challenges to conquer?

Dear reader, your capital is the essence through which this artificial body known as the market is given animus! Yes yes, the unexpected termination of a chief executive has harrowing effects on a company’s stock in the short-term, but in the long run if often recovers, does it not?

It matters little who is buying long and who is selling short, what matters is that there is room for both parties to profit. Consider the following statistic from S&P Global Market Intelligence:

Turnover among CEOs of major firms rose to 17.5% in 2018 from 14.5% in 2017 as more chief executives were dismissed over allegations of ethical lapses rather than financial performance or disputes with their boards, according to a PricewaterhouseCoopers study published May 15.

For those of our readership who are uniformly long in the market, these drops in share price constitute buying opportunities, dear reader. What thrift!

And for those of us individuals who are short, there is an opportunity of another kind. It is a zero-sum game after all, and the market requires liquidity for there to be successful wealth transfusions.

As to which camp I belong, I decline to comment, as is my right.

 

–Mr. Millionaire

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