More Pain Ahead For Medallion Financial Corporation (NASDAQ: MFIN)

Ridesharing service companies have been growing at an astounding pace, and consequently, traditional car services, such as the NYC yellow taxi business, have been suffering. Although there was a recent campaign from many members to delete Uber, to protest against the CEO’s position on President Trump’s economic advisory council and his rude remarks to an Uber driver, there are still many users fueling Uber’s revenue growth.
However, if there are many users continuing to delete the Uber app, they’ll most likely look for other options, such as Lyft and Juno, due to the ease of use. Consequently, these apps have hurt the Medallion Financial Corp. (NASDAQ: MFIN), which primarily conducts consumer lending, taxi medallion lending and commercial lending businesses.

MFIN Put Option Activity

Shares of Medallion Financial Corp were down 2.79% on below average trading volume. Here’s a look at MFIN’s recent performance:

MFIN

However, that was not the case in terms of the options market. In fact, today’s option activity in MFIN was 3X above average, since more than 1,500 puts traded on the day.

With that said, 1,500 March 2.5 puts traded on the ask side when the stock was trading at $2.05 per share. By buying these deep in-the-money puts, it allows the option player to have a position similar to short stock. However, their risk is defined, and they don’t have to worry about getting bought in on their short. Buying deep in-the-money options is a creative way for traders to get either long or short a stock, allowing them to utilize leverage and define risk.

For example, one $2.5 put in March cost the trader $45 to control 100 shares. Not too shabby. A lot of times, traders will not even think about options when it comes to small cap stocks, however; there are advantages worth considering, like the ones mentioned above.

MFIN Fourth Quarter and Full Year 2016 Financial Results

Medallion Financial reported its fourth quarter and full year 2016 results on March 7, 2017. Now, Medallion Financial reported a net investment loss, before income taxes, of $9.9M for the 2016 fiscal year, which was a significant decrease from its net investment income, before incomes taxes of $16.8M for the 2015 fiscal year. Moreover, its net investment income before income taxes was $55M for the 2016 fiscal year, which was a decrease from $59M during the 2016 fiscal year.

Moreover, the company reiterated it would not be a regulated investment company for the fiscal year ended on Dec. 31, 2016, which made the company subject to taxation as a corporation. Additionally, it expected it would not be a regulated investment company during the 2017 fiscal year, which means the company is not required to pay a dividend. That in mind, Medallion Financial elected not to pay out a dividend to shareholders during the current quarter.

Additionally, the company had total liabilities of $403.28M, and total stockholders’ equity of just $286.10M. Consequently, it had a debt to equity ratio of 1.40.

 

The Bottom Line

That said, ridesharing companies seem like they’re hurting the medallion business, which has caused MFIN’s net investment before incomes to fall. Moreover, the recent put option activity indicates that MFIN shares could fall further.

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