(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
Another Prediction Comes to Fruition
My most recent blog post accurately forecast that WPCS International (WPCS) would imminently announce a transformational "shareholder value proposition." I conjectured that WPCS may be bought out at a significant premium, given its exceptionally low valuation. Last night, WPCS indeed made a game-changing announcement that should provide a significant catalyst for shares. Rather than being the target of a buyout, WPCS announced something perhaps even more exciting: the acquisition of BTX Trader, the developer of a proprietary trading platform for the Bitcoin industry. Why is this so significant? As a prominent Bitcoin newsletter attests, the first and only stock for investing in the Bitcoin sector is now officially WPCS International .
WPCS: The Superior Way to Participate in the Bitcoin Arena
Wall Street has been desperately waiting for a way to invest in the Bitcoin speculation through the equities market. So much so, in fact, that investors have sent shares of MediaBistro (MBIS) soaring from $1 to $5 on news that the company was merely sponsoring a Bitcoin conference. Incidentally, the market is assigning MediaBistro a valuation exceeding four times that of WPCS, despite MediaBistro having substantially less annual revenues and a tenuous Bitcoin connection at best. Elephant Talk (ELTK) is another company that traders have attempted to tout as a way to play the Bitcoin excitement. Elephant Talk virtually doubled as a result, and currently sports a market capitalization a jaw-dropping 40 times that of WPCS. The fact of the matter is that WPCS is currently the only stock trading on a major exchange that can now truly be called a Bitcoin play.
Investing in shares of WPCS lends itself to numerous advantages over transacting in the Bitcoin currency itself. VirtualMining.com addresses some of these issues:
Plagued by lengthy application forms, complicated banking requirements, offshore accounting arrangements, background identity checks, withdrawal delays often lasting weeks, and intra-day fluctuations exceeding 50%, most U.S. investors have been understandably hesitant to buy Bitcoins directly.
Importantly, BTX Trader is the only trading platform to offer seamless access to the six largest Bitcoin exchanges that handle 90 percent of Bitcoin trading activity. Thus, investors in WPCS do not have to concern themselves with choosing the "best" exchange through which to purchase Bitcoin, as they have exposure to all of them.
Investors in WPCS also have the additional security of its healthy underlying business generating positive cash flow with a significant backlog of orders.
First Mover in a White-Hot Sector
Bitcoin has gone mainstream, and Wall Street has taken notice. Despite recent setbacks in China, Bitcoin has generated an intense amount of enthusiasm and interest from astute "smart money" investors and the financial community at large. The legendary investor Marc Andreessen of Andreessen Horowitz recently invested in a Bitcoin company. The Winklevoss Twins are significant Bitcoin holders and predict the market will hit $400 billion. Hundreds of retailers have already begun to accept Bitcoin as payment. Financial analysts at Wall Street firms from Bank of America to Wedbush Securities have issued reports discussing the currency. WPCS is currently the only way to participate in this trend through the equities market.
Short-sellers and naysayers have already begun to disseminate via social media a variety of naive comments at best and blatant falsehoods at worst regarding the WPCS/BTX announcement. Immediately following the news release, shares of WPCS surged, testing their yearly highs of $5.27. Shortly thereafter, numerous tweeters and message board posters asserted that WPCS was flooding the market with $75 million of new shares to pay for the acquisition. This is patently false, as anyone who can read a press release or an SEC filing can attest. This false chatter infiltrating the volatile late night trading session appeared to spook investors, sending shares well off their highs (and providing a compelling buying opportunity). On the contrary, the BTX transaction is relatively nondilutive. The newly issued preferreds convert to fewer than 700,000 shares, and the 1.5 million warrants have an exercise price of $5, representing a substantial premium to the closing price of WPCS shares. Additionally, none of these issues can be exercised or converted until shareholders approve the number of shares of common stock authorized for issuance to 75 million. This is the fodder the bears used to spook investors. However, this is actually an anti-dilutive measure, as it prevents any increase in the float and outstanding share count for the foreseeable future. Shares are currently closely held, and there is a de minimus probability that this stipulation will ever be met. Some also inaccurately asserted that the BTX platform was just created a couple of weeks ago. Again, this is an easily refutable assertion, as BTX has been in beta testing since May. Of course, since Bitcoin has just recently captured the world's attention, most platforms are necessarily going to have relatively short histories. A few have also chided the company for venturing into a new, unrelated line of business. WPCS specializes in wireless communications infrastructure, so the BTX acquisition is really not that far afield. In any case, hundreds of conglomerates such as General Electric (GE) are involved in dozens of disparate businesses. Regardless, the acquisition of a company with tremendous growth prospects in the hottest sector of the decade, all for a reasonable price, seems an exceptionally prudent move.
As is the case with all microcap stocks, WPCS is a speculative idea that, although risky, offers the potential of high returns. The stock is closely-held, and if a large insider elects to liquidate his position, it would likely weigh on the stock. If Bitcoin ceases to become a viable currency, then the BTX acquisition may not provide the returns that investors anticipate. Additionally, converts may temporarily weigh on the stock in the future when certain thresholds are reached.
Holiday Momentum Play
In announcing the BTX transaction, CEO Sebastian Giordano proclaimed:
As one of the first publicly traded companies to make an early entrance into the Bitcoin space, we believe this transaction is consistent with ongoing efforts to provide the Company with an opportunity to deliver improved shareholder value in the future."
A number of alluring investment themes over the years have taken Wall Street by storm, fueling intense speculation in the shares of companies positioned in the right place at the right time. This is especially true as the holiday season approaches, and speculative frenzy is at its climax. In the late 90s shares of companies that announced website launches went parabolic. In subsequent years shares of companies involved in such hot areas as B2B, stem cells, and the Chinese boom have caught the speculative fever of investors. As this year comes to a close, the sectors in the limelight are undoubtedly 3D printing and Bitcoin. In my previous blog post I discussed why WPCS represented a compelling investment even prior to this transformational BTX acquisition. Now that WPCS is the exclusive, go-to Bitcoin play on the NASDAQ, I expect shares to react in much the same way as K-Tel did following its famous website launch announcement in the 90s.
Update: Sources tell me a conference call is to be announced imminently to discuss the BTX Bitcoin transaction and address any investor inquiries.