Eastman Kodak: This Stock Is Probably Going to Zero

×
KodakYou'll be seeing plenty of stories detailing Eastman Kodak's (EK) bankruptcy filing, how the company got to this point, and speculating about what will happen next. My advice is simple: Stay away from this stock if you know what's good for your portfolio.

The photography pioneer's decision to enter into Chapter 11 bankruptcy protection came as no surprise. The cash-strapped and recently profitless icon had been circling the drain for months. Kodak was down to selling patents and assets to raise money in a desperate garage sale. The Wall Street Journal reported that the company was bringing in a chief restructuring officer just before the Thursday-morning bankruptcy filing, and that's a post that is created solely for the intention of preparing a fiscal surrender.

Gambling in the Darkroom

Speculators will be tempted in the coming days to nibble on Kodak's shares. A bankruptcy filing doesn't halt trading in a company, though the ticker symbol changes to reflect its filing state.

That sort of investing is a losing game.

More often than not, any type of bankruptcy will wipe out the common stockholders. It may not seem that way during the coming weeks. The low price and the heavy volume will convince some to take a chance, because obviously, other people are buying. Some will argue that filing for a reorganization -- and not an outright liquidation in Chapter 7 -- implies that the company will live to see another day.

There will always be exceptions to the rule, but the smart money has to be on Kodak's common stock being retired worthless in a few weeks or months. Keep in mind that creditors will need to be satisfied before common shareholders get to the head of the line, and there's rarely anything left after corporate lenders are willing to take pennies on their borrowed dollars.

Kodak has a rich long history, but that doesn't matter today. Kodak is rich in intellectual property and assets, but those may very well belong to the secured creditors by the time that the company emerges from bankruptcy with a new ownership structure. Read up on the fate of bankruptcies in the past. Folks buying the common stock are usually -- though not always -- wiped out.

Kodak filmDigital Killed the Photo Film Star

Facebook killed Kodak as we know it. Your smartphone and digital camera killed Kodak. The company that rose to fame with its film and photofinishing services isn't as necessary these days. Small flash memory cards and internal gadget memory are the new rolls of film. There's no need to print photographs when they can be blown up on PCs and tablets, and shared on social networking websites for all to enjoy.

Kodak made the best of its situation, moving into areas that seemed more stable, but it was really just a matter of time. The path to profitability at this point seemed unattainable.

We'll see what Kodak looks like when it emerges from bankruptcy later this year. Its balance sheet will be more agreeable. It may be a smaller company after creditors hack away at its assets. However, if you take a before and after picture of Kodak's stockholders, they will probably be entirely different sets of investors.

Be smart. Don't blink when you see the flash go off.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article.

Increase your money and finance knowledge from home

Goal Setting

Want to succeed? Then you need goals!

View Course »

Portfolio Basics

What are stocks? Learn how to start investing.

View Course »

Add a Comment

*0 / 3000 Character Maximum

15 Comments

Filter by:
haddonfineart

It will be a cold day in hell if America lets Kodak cease to exist. We will all be buying Japan instead of Buy American!

January 27 2012 at 6:47 PM Report abuse rate up rate down Reply
haddonfineart

Who will we buy all of our Film, and Chemicals from when Kodak ceases to exist?
Along with developing for Medium, and Large format film ?
Will we have to but from JAPAN ? What will happen to all of Kodak in Rochester, NY ?
And the Maine ? It all comes down to management and the need to run a 21st century business with 21 st century
management. Hopefully we will not have to give up another American Institution

January 27 2012 at 6:38 PM Report abuse rate up rate down Reply
brainburst

I can't help but wonder how the executive compensation at this firm and other failures like it, can possibly be justified. Where is the meritocracy I keep hearing about? Kodak would have been better off without any executive oversight. They should have left management to the employees.

January 24 2012 at 7:48 PM Report abuse rate up rate down Reply
mb1958

What Kodak a once proud company has done to itself is very sad. This is a study that will be viewed in business schools for years as an example of no vision, in fact pure blindness. It will be studied as an example of the worst management in years and a smugness that may surpass all other companies. Too Big to Fail?

Strangely, the people of Rochester, NY saw it coming 30 years ago. They just kept bringing in one dunce after another to systematically destroy this once great company.We had the funeral years ago. George Eastman, the founder built many fine institutions and brought great wealth to the city. These institutions and cultural landmarks will sadly outlive the business that payed for all of them.

January 20 2012 at 10:56 AM Report abuse rate up rate down Reply
spiguyone

This is a classic case of bad management who was more worried about Wall St than the company itself. In the 70's Kodak developed one of the first digital cameras by a Mr. Sasson rather than get behind the product where they could manage the transition they were afraid of losing any film business so they elected to ignore technology. I feel for all the employees and pensioners who will feel the pinch all because a management team who had their heads in the sand.

January 20 2012 at 10:24 AM Report abuse rate up rate down Reply
ilm9p

Wow a Company in a dieing industry declares bankruptcy and the suggestion is that their stock will likely hit zero. That finance degree is really working out for you isn't it Rick?

January 20 2012 at 7:27 AM Report abuse rate up rate down Reply
Artie

This is just another sad sign of the times. Who'd ever think an iconic company and name like Kodak would be allowed to just wither and die on the vine? This is obviously what happens when you don't stay ahead of new and developing technology. Kodak really needed to find new businesses avenues and innovate. At one time, Kodak probably had enough money where it could have successfully headed in a new direction. The company obviously did too little....too late. I still feel bad.

January 19 2012 at 4:23 PM Report abuse +1 rate up rate down Reply
printquick

finally stock I can afford

January 19 2012 at 4:12 PM Report abuse rate up rate down Reply
cavekrazi

anybody remember Spectrum Information Technology???? Hmmmm????

January 19 2012 at 3:45 PM Report abuse +1 rate up rate down Reply
bocavert

At a simpler time,when they actually gave you stock certificates, the 5 stocks worth buying were Sears,AT&T, Kodak, US Steel, GM.
Adjust to the times, evolve or become extinct.

January 19 2012 at 3:39 PM Report abuse +1 rate up rate down Reply