Snapshot
My Implied Share Price: $34.27
Situation
This is my rationale for the quick in and out trades of JetAI (JTAI).
I initially got into the position because when I valued the company, I saw that it was transitioning. I saw the share price had dropped dramatically over the years. However, I also saw that the company was making some investments in AI.
JetAI had invested in a subsidiary of Space X, which is going to go public. And, they invested in a SPAC. There were also investments in at least two AI data centers, one of them was in Canada, I believe.
When I looked at the numbers, especially after the reverse split, I saw that there were very few shares left outstanding. Particularly, I came up with the share court I was using based on dividing the market cap by the share price. The result, I thought, would make up the main portion of the shares remaining. This turned out to be wrong.
I also recognized that the JetAI leadership was the same leadership for the new SPAC it had invested in, AIIA.
I thought initially that JetAI owned almost half of the SPAC. And, I believed that if they receive the $12 million to $24 million proceeds from selling of the private aircraft business, considering the very few shares left in the company, it would be a substantial rise in share price.
Response
With that, I purchased a substantial chunk. Based on my valuation, regardless of how I looked at it, the shares were extremely undervalued.
After I purchased the very large position, I continued to research, and the announcement came out regarding the special meeting, which contained additional details about the company. After I reviewed the new information it raised more concerns for me.
In regards to the number of shares, I recognize that my initial number was wrong and there were substantially more shares outstanding based on the undiluted shares. The result was going to be about double the number of shares outstanding than in my initial estimate. Over 1.1 for 1.2 million shares.
I also saw that management did not have a substantial equity stake in the JetAI. Actually, my position would likely be larger than the reported interest of some of the head managers. That concerned me, because they didn’t have the same interest as I did.
The announcement also showed, if the jet sale deal closed, that the top three people in management were each going to receive about $1.5 million, which in my calculation was going to be a total of over $4.5 million dollars. That money would have to come from somewhere.
I also reviewed the company that was going to be purchasing the asset,FLYX, and my evaluation had them currently overvalued. So the shares that JetAI shareholders would receive would be overvalued shares of another company, and I saw that that other company had a single majority owner who had control. Taking all of these issues together, it concerned me.
Reflections
I still saw this as an undervalued stock, but it raised a number of risks that I had not considered to be part of the deal. And this was not the type of risk I wanted to take with my holding company. I view my portfolio as my company and I operate it just like a business. So with that, I made the decision to divest.
It ended up being a quick turnaround time, just a few days, between when I bought and sold. Plus, it was a very large steak. But fortunately I did benefit because I got a profit out of it. However, it was not the original intent to just trade … but that’s what it ended up being.
In my mind, I match this decision with my erroneous equity futures trading decision, I made a couple months ago. This essentially cancelled out that mistake. But, most importantly, I learned from both mistakes and hope not to make the same mistakes in the future.