In the pink: quality companies move to the pink sheets to avoid regulations, trim costs.(Cover Story)

Publication: Buyside

Publication Date: 22-JUN-03

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COPYRIGHT 2003 Adams Business Media

For most public companies, being "in the pinks" has been a stigma to be avoided at all costs. Savvy investors viewed these stocks as a "pink flag" signifying that the company was in trouble. And for years, the pink sheets were inhabited primarily by over-hyped and often worthless penny stocks foisted off on unwitting investors looking for that one cheap investment that was going to make them wealthy. Others were troubled companies mat were just passing through on their way to oblivion.

But a change is taking place. In recent months, trading volume in pink sheet stocks has increased dramatically, surpassing volume on the soon-to-be-disbanded OTC Bulletin Board. While still nowhere near the tremendous trading volumes of the NYSE or Nasdaq, trading in pink sheet stocks has approached 300 million shares a day. It's important to keep that figure in perspective; on a recent day in late May, the value of all those trades was slightly more than $100 million, or about 33 cents per share. In contrast, volume on New York's Big Board recently has averaged more than 1.4 billion shares daily.

"When the bulletin board is gone, many small companies will have no place to go but the pinks," says Andrew Berger, editor of Walker's Manual of Unlisted Stocks, which claims to be the only definitive guide to quality pink sheet companies. Walker's book delivers detailed research on what he believes are the 500 best companies listed.

Analysts with Walker's Manual comb company Web sites, look for news and annual reports, and talk to company officials. Even so, there is often relatively little information available. These are very small companies, typically between $5 million and $50 million in revenues, emphasizes Berger.

The public U.S. markets are becoming a far less hospitable place for these small companies than they were just a few years ago. The many new regulatory, auditing and board requirements imposed by Sarbanes-Oxley add tens...

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