Hampton Roads Bankshares (HMPR) is a microcap bank holding company that operates community banks in southern Virginia and North Carolina. It is also a debt ridden carcass. It recently cut its dividend and cancelled a 32.5 million share stock offering without giving any reason. They swung to a loss in the most recent quarter, losing $42.6 million in the second quarter. If you look at the summary of risk factors from the August 10th 10Q, you will be positively frightened. This company is facing a number of difficulties. Loans and deposits are decreasing. The asset base is eroding. There have been significant changes in senior management. Non-performing loans increased over 50% from last quarter. The stock has basically been cut by 2/3 since the beginning of the year. So why do I like it?
Well, it's extremely cheap. It's trading at a 52-week low. It's trading at about 1/3 of book value. It's heavily shorted(10%), so there could be a short-covering pop coming soon. I like that they suspended the dividend. They need the cash. It's a responsible move by management.
This is basically betting that the company can get the capital it needs to ride out the storm.
In short, I don't think that thing can get much worse for the company. This is a classic point of maximum pessimism call. This is speculative and I'm not going to use just a tiny sliver of my portfolio in order to stake out this position. also, I'm going to slowly build a position, buying in chunks and using tight limit orders.
Heads, I win big, Tails, I don't lose much. That's my approach to speculation.
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