Bank of the Ozarks' shares dropped almost 15 percent during the trading day Wednesday after an investor at an investment conference said he was short-selling the stock.
The fall was only a snapshot of a two-week skid that the stock has taken.
The shares have fallen more than 17 percent since April 20, when they closed at $44.74. The shares fell 68 cents, or 1.8 percent, to close Thursday at $37.01. Bank of the Ozarks' market capitalization -- the value of its total shares multiplied by its stock price -- has fallen about $700 million since April 20.
Wednesday's intraday slide -- from $39.43 at Tuesday's close to $33.66 during Wednesday trading -- came after Carson Block, founder of investment research firm Muddy Waters Research, announced at the 21st annual Sohn Conference in New York that he was shorting Bank of the Ozarks' stock, according to reports by American Banker and Yahoo Finance.
The shares traded Wednesday at 10 times the average volume and triple the average volume on Thursday.
Short selling is a risky method of profiting from a declining stock price by borrowing shares of the stock, selling them at the current price and then repurchasing the same number of shares at a future date, hopefully at a lower price. In essence, it is a gamble that the stock price will decline.
Block's position is that the bank's loans are very concentrated in real estate lending, particularly in construction, Yahoo Finance reported.
Block, who has a reputation for shorting stocks, also criticized Bank of the Ozarks' acquisition strategy, indicating that its growth depends on the deals, which he said would eventually dry up, American Banker said.
A spokesman for Bank of the Ozarks, which has $11.4 billion in assets, did not respond to a request for comment.
Short sales represent about 17 percent of Bank of the Ozarks' shares available for trading, said Matt Olney, a banking analyst in Little Rock with Stephens Inc.
But in May 2009, during the national recession, as much as 39 percent of the bank's shares available for trading was being shorted, possibly as high as any stock on the Nasdaq exchange at the time, Olney said in a research brief Thursday.
That didn't turn out well for short sellers, Olney said.
After that 39 percent peak, Bank of the Ozarks considerably outperformed a regional bank index, Olney said.
In the following 12 months, Bank of the Ozarks' total return was 42 percent compared with an index of regional banks that returned 25 percent, Olney said. "The following five years, its total return was 374 percent" compared with 90 percent from the regional bank index, he said.
Bank of the Ozarks weathered the financial crisis much better than many of its peers, Michael Rose, an analyst with Raymond James & Associates, told the American Banker.
"Some of this analysis is muddy at best," Rose told the American Banker of Block's comments. "You can miss a lot from just a cursory review of their regulatory filings. I've talked to several of the bank's largest investors and people think this is an overreaction."
Olney continues to have a buy rating on Bank of the Ozarks, with a price target of $46 a share.
Business on 05/06/2016