6 Overvalued Short Candidates Revisited

by: Edward Schneider, CFA

At the end of October, Seeking Alpha published my article entitled 6 Overvalued Short Candidates. Here is the scorecard of how they performed since the article was published:

Name Ticker Price 28.10.11 Price 12.01.12 % change
Careview Communic. OTCQB:CRVW $1.55 $1.76 +14%
Green Automotive OTCPK:GACR $1.35 $0.93 -31%
Hoku HOKU $1.61 $0.70 -57%
Max Sound OTCPK:MAXD $0.88 $0.48 -55%
Mytrah Energy MYT (London) £0.95
St. Elias Mines SLI (Toronto)
Click to enlarge

Despite the horrendous declines of most of these stocks, they still remain way overvalued today. They all sport enterprise values of $90M to $350M, no real revenues, and are losing a ton of money. They have broken business models, that became even more dysfunctional in the past few months.

Name Enterprise Value Revenues EV/Revs Net Loss
Careview Communic. $242M $0.5M 472x -$20.4M
Green Automotive $224M none NA -$0.9M
Hoku $356M $3.9M 91x -$25.3M
Max Sound $121M $0.004M 30285X -$6.4M
Mytrah Energy $338M $2.3M 149x -$0.7M
St. Elias Mines $90M none NA -$10.6M
Click to enlarge

I encourage readers to revisit the article because the analysis of each company was spot-on and remains very relevant today.

St. Elias Mines' (SLI, TSXV) (OTCPK:SELSF) hand was finally forced, and they released horrible drilling results from their over-hyped Tesoro property. The grades were low, and the widths were extremely narrow. There is very little hope left for Tesoro and St. Elias. By coincidence, the same day that St. Elias reported its results, Kaminak Gold (KAM, TSXV) (OTCPK:KMKGF) reported stellar results with substantial Au grades on 10 meter widths, not mediocre grades on spider veins at fractions of a meter. But Kaminak's enterprise value of $115M is fairly close to that of St. Elias. Go figure.

Hoku (HOKU) is literally getting fried by Idaho Power who has threatened to turn off power if Hoku does not pay its November utility bill of $1.9M. But that is the least of Hoku's troubles. It has an unfinished plant that is uncompetitive at current world prices. It cannot feasibly sell its polysilicon back to China due to retaliatory tariffs. It has a mountain of debt that will never be paid back, dilution a la mode by its majority shareholder, and flailing end-demand. Need I say more?

Careview (OTCQB:CRVW) is a bit perplexing. September quarter results were abysmal with barely any revenues and heavy losses again. They borrowed another $5M from a major investor (HealthCor) this week. Careview now owes HealthCor $25M, in addition to their other creditors, with very little chance of ever paying them back. But the stock continues to defy gravity.

Mytrah (MYT, LSE-AIM) reported maiden revenues of $2.2M for the six months ended September 2011. Two losses were reported, one from continuing operations for -$0.7M and a comprehensive loss for -$9.7M. Management continues to pile on debt, and will need even more capital to pay its windmill suppliers.

Green Automotive (OTCPK:GACR), or soon-to-be-called Matter of Time I, has not reported any substantial news - for that matter, neither has Max Sound (OTCPK:MAXD). No news leads to weak market action in the OTCBB world, as there are no fundamental revenues or earnings to support the shares. Several OTCBB stocks rely on a series of vaporware news releases along with promotional trading activity (see here for details) that hooks unsophisticated retail investors. These pump cycles can be dramatic - Max Sound rose 9x in only a few months - which then presents shorting opportunities if you can get the stock.

On a side note, KiOR (NASDAQ:KIOR) was another short published in Seeking Alpha in October - see here. Since our October publication, KiOR's stock price is down 45% to $9.35 at present. But the company still maintains an enterprise value of $803M, no revenues, and a net loss of $72M.

Disclosure: I am short SLI.V, MYT.L, MAXD.OB, HOKU, GACR.PK, CRVW.OB, KIOR