In an industry that’s booming, crossroads Trading Company of America (CTCA) is taking a big risk.
It’s offering its latest offering in the Crossroads trading space, the $5.2 billion company Crossroads Trading Group.
The company’s stock, currently trading at $5,210 per share, has fallen almost 50% since its launch in March.
That could make it tough to convince investors to invest in its new offering.
“The stock has lost almost 60% of its value since its first trading in May, and that’s only for the last four months,” says Brian D. Smith, an analyst at Cowen & Russell.
“I don’t see how Crossroads will be able to generate much growth in the next few quarters.”
The Crossroads offering has two components.
First, it offers to buy and sell two other companies from the same trading house — Crossroads Advisors LLC and Crossroads Associates.
The companies are known as Crossroads Trade Group.
But the trading house that owns both companies also owns the Crossroad Trading Company, which is also called Crossroads Group.
Second, the company has a $1.5 billion option to buy one of the two companies from Crossroads Management LLC.
Both the companies are in the cross-industry trading space and the trading firm that owns the companies is Crossroads Holding Corp., according to the filing.
Both of the companies that are listed in the prospectus are cross-border stocks, so it makes sense for Crossroads to target them, says Smith.
The new offering will be the second time the company’s offering has been offered in the space, and it’s unclear whether the new offering is in line with the strategy that Crossroads took in 2016.
Crossroads was able to tap into a deep reservoir of money thanks to its stock market exposure.
It holds an average of $12 billion in assets and holds $6.7 billion in debt, according to its filing.
The stock’s market value was $2.2 trillion at the end of 2016, according, and the company is valued at $4.9 billion.
Crossroad was able, however, to raise capital from investors and build a strong infrastructure.
It also has a network of brokers who work closely with investors to help facilitate trades.
That’s important because there are often more options in cross-selling than there are in traditional stocks, says Dolan Johnson, an investment strategist at Capital Advisors.
“It’s kind of like a cross-referencing system for the crossbench market,” he says.
“If you’re trading cross-tradeable securities, you’ll probably get more exposure.
Cross trading is a great way to do that.”
Smith says Crossroads is in a good spot.
Its stock price is higher than the market value of the other trading firms, and its growth prospects are promising.
But that doesn’t mean the stock will continue to rise.
The next major round of trading will be on October 13, and some investors are likely to get excited about the prospect of buying into the new company.
But for most investors, the opportunity is limited.
“They’re likely to take the risk,” says Smith, noting that the stock is traded in a small number of markets.
“We don’t know how much interest Crossroads has in getting into the crosstrade market.”
A lot of people have been selling off stocks.
So why not just buy one and take advantage of the opportunities?
“The risk is a little lessened if you do that,” says D.J. Johnson, a market analyst at RBC Capital Markets.
“You’re not really giving up your money.
You’re giving them something else that they can use in the future.”
Crossroads managing director Michael P. Schaffer, who was named CEO in January, says he wants to “make sure we have a long-term view.”
He also says he believes the company will grow and has plans to add a $10 billion line of credit to its capital plan, which will give it more breathing room to grow.
“There’s a lot of risk involved in cross trading,” he tells HuffPost.
“Our goal is to get to the next level.”