ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, June 1, 1996 TAG: 9606030048
SECTION: BUSINESS PAGE: A4 EDITION: METRO
SOURCE: DAN MORRISON BLOOMBERG BUSINESS NEWS
SHARE PRICES ROCKETED more than tenfold, hitting a high of 110. During the buying frenzy, one dealer had his bases covered.
Investors who tried to get their hands on Optical Cable Corp. stock during its recent surge found the quest almost as hard as latching onto one of the world's two known 1910 Honus Wagner baseball cards.
That's because only 670,000 shares of the Roanoke fiber-optic cable maker's 9.67 million outstanding shares were actually available to the public. Chairman Robert Kopstein owns the rest.
That paltry number of shares, combined with investors' talk about the newly public company on the Internet, created a frenzy in the eight weeks since the company first offered shares to the public April 2. Share prices rocketed more than tenfold, hitting a high of $110. They closed at $88 Friday.
``It was like Pavlovian dogs; people saw the price going up, and they started salivating,'' said Mitch Metzman, vice president of research at Newby & Co. in Rockville, Md., one of Optical's largest shareholders and a market maker in the stock.
Most investors didn't know Optical Cable's unique circumstances. The company took itself public, a rarity that meant information was scarce.
But they saw another high-flying tech stock and wanted to get in on the ground floor. They weren't aware that they could get their hands on only 7 percent of the shares, compared with a typical initial public offering of 15 percent to 40 percent of a company's stock.
Ignorance was bliss, at least for a while. During the stock's phenomenal run, many investors read and talked about it on the Internet. Optical was one of the most-discussed stocks this week on Silicon Investor, an Internet site dedicated to technology stocks.
Those investors then flooded the Nasdaq stock market with buy orders. Most of the recent trading has been in packets of between 100 shares and 400 shares per trade, typical of small investors.
Nasdaq forces market makers, the dealers who continually buy and sell stocks in the over-the-counter markets, to fill the orders they get. With 670,000 shares though, only some market makers had the inventory of stock to cover the orders. The others had to get shares from somewhere else.
``Finding stock to cover themselves was like deep-sea fishing and your wedding ring falls in the water and you have to find it with your wife watching,'' Metzman said. ``If that's not heat, I don't know what is.''
Metzman wasn't fishing. Before Optical Cable went public, he talked to Kopstein and studied the company. He liked what he saw - 17 percent net operating margins and a ``great buy'' at $10 a share. That's the price Optical was charging for admission the day it went public.
Optical Cable makes weatherproof fiber-optic cable that can be used indoors or outdoors to carry voice, data and video. A special sheath makes it ``strong as a tank, and flexible like a rubber band,'' Kopstein said. It employs about 110 at its plant at Valleypointe in Roanoke County.
Optical competes against industry leaders such as AT&T Corp. and Corning Inc., the company that invented fiber optics. It's betting that telephone and cable TV companies will fulfill their vision of bringing fiber optics to people's homes, offering them high-speed connections to the Internet and other entertainment.
As demand for Optical shares surged, market makers widened their spread between the bid and ask prices for buying and selling the stock. In Optical Cable's case, those spreads were as wide as $15. Market makers could demand those spreads because of the risk they were taking in filling orders. It also meant hefty profits for them.
Newby's spreads were some of the widest. That's because Metzman had accumulated 150,000 shares early on. At the end of each trading day when other market makers clawed to get some of Optical Cable's shares, Metzman was the man to go to.
In the end, Optical also reaped the benefits. The company declared a 2-for-1 stock split, which will put another 670,000 shares in the public domain.
Honus Wagner can only hope to be so lucky when his card goes on the auction block at Christie's this fall. Starting bids for a picture of the Pittsburgh Pirates shortstop holding a bat - $400,000.
LENGTH: Medium: 79 linesby CNB