Shares of short squeeze stock Troika Media Group (NASDAQ:TRKA) collapsed 40% on March 7 after the firm released its latest financial report.

It was bad.

Although the firm posted a robust $187.9 million in revenues, earnings fell far short of even my most conservative estimates. Adjusted EBITDA barely reached $5 million in the six months ended December 2022, less than half the rate needed to reach its initial $27 million target. Free cash flow only came in at $1.9 million for the six months.

According to a 2-stage discounted cash flow (DCF) analysis, earning such low figures pegs Troika Media Group’s equity at around $60 million, a far cry from my initial $300 million target. You’ll see later that I’m cutting my price target to reflect this new reality.

The bigger question, however, is this:

How many shares does Troika now have outstanding?

Because that will be the difference between TRKA stock at 54 cents and TRKA stock at $1.84.

Where Troika’s Value Now Stands

Troika Media is a frustratingly opaque business. The firm deals with enterprise clients, making sales cycles long and lumpy. And unless you’re personally in the market for customer acquisition services, you tend to learn about the health of these businesses by looking in the rear-view mirror. It’s why even major cybersecurity firms like Zscaler (NASDAQ:ZS) can rise or fall by 10% or more after announcing earnings; even the best-paid stock analysts on Wall Street often have no idea where the book of business stands.

Troika’s latest annual report now suggests that its business is not as healthy as initially assumed. Assuming that its free cash flow only hits $6 million annually by 2025, the justified value for the enterprise drops to around $170 million.

Then things get worse.

In its latest report, Troika Media reported it now has 344 million shares outstanding, up dramatically from the 64 million it reported in November 2022.

That means its key creditor, Blue Torch Finance, might have exercised its 266,666,640 warrants between December 2022 and March 2023 without filing ownership change documents with the SEC. This would have raised around $68 million for Troika, but at some of the worst possible valuations imaginable… and perhaps giving Blue Torch a chance to sell its shares in the open market. (The company’s announcement it was withdrawing its S-1 registration to issue 200 million of new shares would have also provided cover).

It’s an action that I didn’t anticipate. And it entirely breaks my 1,000% upside thesis for TRKA stock.

• Before. Deduct $50 million in net debt from $170 million enterprise value and divide by 64 million shares = $1.84
• After. $170 million enterprise value plus $17 million cash, divided by 344 million shares = 54 cents

What Is TRKA Stock Worth?

Just a few weeks ago, I was under the impression that Troika was worth around $4.70 per share. Strong Q3 figures and relatively aligned stakeholder interests meant the stock had an enormous upside.

Fast forward to today, and everything has changed. Not only did Troika disappoint with its latest earnings (dropping its valuation to $1.84). One of its key stakeholders might have exercised warrants without notifying external shareholders. That would lower the company’s fair value to 54 cents and eliminate most of the upside. (Emails to the company’s investor relations department and chief financial officer have gone unanswered).

Perhaps it’s all a big misunderstanding. Troika’s auditors could have accidentally included unexercised warrants in their share counts. That would explain why the firm failed to report such a material change to the SEC.

Until Troika’s management can clear the situation, I cannot recommend any position in TRKA stock. Not even as a speculative play.

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On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.