Revolution Lighting Technologies (RVLT) is rocking up as much as 50% on news that office landlord SL Green Realty has selected RVLT retrofit more than 1,000 lamps at the 1.8 million-square-foot Viacom (VIA) corporate headquarters. This is expected to reduce energy consumption by 55% once completed. RVLT engages in the design, manufacture, marketing, and sale of light emitting diode (LED) lighting solutions. It definitely sounds like a great score and a big project for RVLT. However, is the move and valuation for the stock really justified for investors to continue to hold on?
5 REASONS RVLT IS A SELL ON THE NEWS
1. The market capitalization is pushing half a billion dollars, and that's not even fully diluted. RVLT has a long history of small (but growing) sales, razor-thin gross profit margins, and huge net losses every quarter. It would be impossible to fundamentally justify this market cap from what I can tell.
2. RVLT is very poorly capitalized and has consistently relied on dilution to keep its lights on (pun intended). There's no reason not to expect dilution to continue especially as they will require more capital to execute the project announced today. Book value is, at most, a couple of pennies per share at any time.
3. Barely over a week ago, RVLT announced a $5 million convertible financing. That fund now finds itself up as much as 32% in profit or $1.62 million in 8 days. It has every incentive to take profits immediately and this will potentially create selling pressure all the way back down to $1.17 where the financing price was executed.
4. Just last month, RVLT's former president and CEO departed "for new opportunities." If things are so good with RVLT, why pursue something else? I always find it to be a red flag when a CEO departs for that reason. It makes it even more difficult to make a fundamental case to justify the market cap.
5. RVLT has a history of seeing large quick spikes in its stock price that never hold as one can view in the chart below.