Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.
Northumberland Resources (OTCQB:NHUR) claims to be an exploration stage company that engages in the exploration and production of oil and gas. In addition, the company claims that it will benefit from an oil boom in Kansas. The stock currently has a market capitalization of $50 million, but this valuation is not justified. For example, I recently wrote an article about ECOtality, which is a "real" company that has a market capitalization of just $37 million. Northumberland is being actively promoted and it will inevitably crash.
The stock has been pumped by both Financier Times and by Billionaire Stocks. The primary pumper of Northumberland has been Billionaire Stocks, with the most recent email being sent on June 23. According to Pennystocks24, Billionaire Stocks has sent 7 alerts on Northumberland Resources since May 12. The emails contain a 19 page long "research report." The report gives the stock a $7 long-term price target, yet no data is used to back up this price target. Also, the report states that Northumberland is a type of company that a young Warren Buffett might buy due to his investments in Phillips 66 (NYSE:PSX) and National Oilwell Varco (NYSE:NOV). Despite the report's claims, this stock is one that any smart investor would stay away from. The language used in the report is bombastic and data is rarely used in its 19 pages. Billionaire Stocks received $3 million from PubCaptial Inc. to promote Northumberland. In addition to the Billionaire Stocks promotion, a Financier Times article on the company was originally published on May 17. The article has since been removed and reposted several times, but here is a PDF version of the original article. On July 4, the article was republished on Financier Times. The language in the article is very similar to the research report and it makes numerous false statements. The article claims that the company is growing at a rate of 739%, yet the company isn't profitable. Financier Times was also compensated with $3 million from PubCapital and this is displayed in a disclaimer at the bottom of the article. The disclaimer for the article states: "A three million dollar investor relations budget is being managed by PubCapital Inc." Here is a link to the full disclaimer.
Like the report, the company's website is very promotional and many of the statements on the website are misleading. For example, the company promises that it can deliver great cash flows, but SEC filings indicate otherwise. The financial highlights section of the site simply states that the company production on X and X wells in 2011. Many of the vague statements on the site are about the oil and gas industry rather than the company's operations.
In addition to the website and the promotional reports, the company has been releasing vague press releases. For instance, the company's most recent press release on June 10 simply states that the company is drilling a new well on its lease and almost no other information is given. Another press release in May contains similar information to the June press release. Many of the earlier press releases simply contain a business summary.
The company is led by Dr. Fortunato Villamagna, who was on the board of National Graphite (OTCQB:NGRC). National Graphite was a pump and dump that occurred last fall. The stock rose from $0.40 to just over a dollar before crashing and arriving at its current price of just $0.12.
Northumberland's fundamentals aren't great. Quarterly revenues have decreased by 78% on a year over year basis. Revenues came in at just $39,000 for Q1 2013, compared to revenues of $182,000 for the corresponding period in 2012. The company is expecting operating costs to continue growing in 2013. Expenses did shrink during the first quarter to $200,000, but this was accompanied by a drop in revenues. The company only has a mere $7,000 in cash. The company only managed to grow its cash by a mere $4,000 in the first quarter. The P/B ratio is well above the industry average. The average P/B ratio for the industry is 2.5, but Northumberland has a P/B ratio of 92. The P/S ratio is sky high at 172. Also, the company has a profit margin of -220%. By comparison, the industry average profit margin is 3.8%. In addition, the stock has ROE of -78%. The company reported a loss of $152,000 in Q1 2013. One of the only positives is that the company's Debt to Equity ratio is .02.
Northumberland Resources is a promoted stock that investors should avoid. The company claims to be growing, but the quarterly reports do not indicate that it actually is growing. Billionaire Stocks and Financier Times have been compensated to promote this stock and it isn't clear when the promotion will end. The stock is currently at $0.80, which is below its 52 week high of $1.69. Despite the drop, the stock has bounced from $0.70 range and the promoters could be trying to go for a second run. However, in just a few more months, Northumberland will end up like National Graphite. Now is the perfect time to short this stock because it will only fall further.
Source: Data from Yahoo! Finance