Converted Organics: Greed, Fear and Greater Fools

I have referred to "greater fools" and the term "hope a dope" a couple of times and the company Converted Organics (COIN) is a perfect example of what I was talking about.

I came across Converted Organics on a day trading stock blog a few weeks ago and I have been following the stock out of curiosity. The stock price of Converted Organics has risen from around two dollars to the current price of $16.59 in the past half year. I am not sure what initially caused the stock price to surge but the stock price has continued to go up on sheer speculation.

Essentially people are buying the stock and hoping other fools will continue to buy the stock and send the share price up. The only thing Converted Organics has going for it is the company has an extremely low float (number of tradable shares). That is the major reason speculators have been able to manipulate the share price up.

However, there are a bunch of warrants outstanding that are quickly being converted to shares and increasing the float. This isn't good news for the people gambling in this stock.

At some point greed is going to turn into fear and the stock price is going to crash. I did a quick check for the fundamentals of COIN and I found that the company doesn't have any. The first quarterly report I came across on the company's website was from Nov 13, 2007 and it showed the company has no revenue! It's simply amazing that people have been buying this stock.

If you are a risk taker you could potentially score a huge gain shorting this stock. The risky part is that the idiots who have been buying this stock may continue to do so. However, this stock could also lose half its value or more in one day when panic selling sets in. It will be interesting to watch what happens.

Disclaimer: I have no position in COIN.

Comments

[Dogcrap]

I to have been following without buying. Only my couristy started back whenit was at $2.50 a share and would goes for days without a single share trading.

I found it facinating that COIN could buy equipment from a Canadian penny stock firm that went bust selling and marketing the equipment yet you could buy this equipment and instintly have a multi million dollar market cap despite that the manufactor of the equipment is now worthless.

There were many troubling signs that I saw. I even tried shorting when this great growth company was not seeking labor needs for it's growth - THANK GOD SCHWAB WOULDN'T LET ME SHORT COIN!!!! But I still say it is worthless.

Notice the cartoon drawing for the product they are trying to sell?

[COINInvestor]

I have done due diligence on Converted Organics and these is a solid story behind the rise in the stock price. They are about to open a recycling facility in Woodbridge NJ that will convert organic waste from the NY metropolitan area into fertilizer. They have already contracted with firms to deliver the waste (and pay Converted Organics to take it) and with distributors to sell the organic fertilizer that gets created. They should have about $1-$2 of annual EPS when this gets going in May. And, they have reached agreement with local goverments in RI for another facility, and are in the process of building in the Bronx and various locations around Boston. Not to mention selling greenhouse gas credits with additional income. This stock hasn't any revenue yet, but you should investigate what's behind the rise in the stock price before calling this a speculative bubble that's going to burst. This just may be the real thing...

[User 161430]

Is Dennis Gartman a fool? I think not

[Igsman]

Ah .... google alerts picked this up for me. This is obviously written by a pathetic short, or someone thats been investing for about 3 weeks. I picked this stock up on my new high screen on the American Thanksgiving in November. When I saw a company with only 4M shares outstanding, that did a great financing with warrants to raise more money ... I bought and bought big. At one point I held 160,000 shares and 50,000 warrants.

The kicker was this. They secured a 17 Million Dollar loan with no operations!! Wow ... I knew this was for real right there. And the news has only gotten better and better.

This stock is on its way to $50.00 - and I expected a pathetic little blog like this to show up any day. Its also on the NSS list, so we know many people are short and sucking air.

Also, many of the shorts were arbs with the warrants to exercise, and thats why they released them for trading. Short stock, buy warrant, excercise = guaranteed profit and company get funds to expand.

[John Kerans]

Hey Phillip --

COIN must be evaluated for what it is: a development-stage company with a clever business model, a company that has figured out how to make money on garbage.

Thus, for now, before its garbage processing plants are up-n-running, normal metrics do not apply.

Consider this: COIN gets tip fees and municipal tax breaks and low feedstock costs on the front end .. and organic fertilizer (w/no toxic runoff) and carbon credits for sale on the back end.

And, following purchase of a California outfit a few weeks ago, COIN has an apparent lock on the patents that turn organic waste into fertilizer in a week or two.

That's a simple view of the business model, but it indicates good potential for revenue.

Yes, the stock price has benefited from speculation, but many investors .. including gurus like Dennis Gartman .. have concluded that the business model -- as outlined above -- merits consideration.

So, take a look at the story that lies behind the price run-up; there may be more meat on the bone than you give COIN credit for.

I happened on COIN last year, and went long at $3.81, expecting a modest return in a year, maybe two. But there seems to be a growing recognition that this company has much greater potential than I first imagined.

John Kerans
St. Louis USA

[vfem]

This was one of my first purchases (and last) or 2007. I didn't move on it until I read through the contract they picked up with a company out of texas who will market the fertilizer part of the company for them. They have also picked up a company that will produce the liquid version of this company with a buyout in california. There first NJ facility is set to open at the end of this month.

If you follow a stock only by the numbers, shares, and filings... you miss out on the actual moves the company is making to work. There are enough contacts with companies and states to move this company nothing but up!

P.S.- They started because they have the rights to a micro bacteria they scientifically created that composes the food waste in 3 months rather then 1 year like previous companies.

[Cameco Jr.]

Good to see all the longers making passionate arguments for this pig in a poke. Dennis Gartman uses CNBC to talk his book and sell into it. He's a shmuck of the first degree. There is no way to value this company using fundamentals until they prove they can do what they say at the margins they claim. Today was arguably a top on that nasty reversal candlestick. All those longers who bought into the story will hang on until the pain gets to be too great and then sell in a fit of capitulation. My downside target is $5 - $6 range. Much more reasonable than the nutter claiming this is a $50 stock. Maybe in 2007, but not in this market.

[HappyBlond04]

I think I smell a short. There is plenty of information about COIN and I believe it is solid. I don't think you looked too hard. Yes, Dennis Gartman did recommend it. Article in Barrons last week. COIN Air is going to fly and you are going to miss the flight!

[upsidetrader]

first of all i am out of the stock at a nice profit so i have no ax here, however i have the opposite view and for the very reason you mentioned.the company needs liquidity in its stock and by folks converting warrants not only does it make the stock more liquid, but provide cash proceeds to the company-

[allbill]

read that it is Dennis Gartman's #1 holding thus I own it. Can anyone show that he's disowned it? He has much respect.

[RobS]

Thank you for pointing out COIN to your large audience. Your article is, in my opinion, one sided and completely fails to mention anything about Converted Organics actual business or prospects for success.

I am a small investor, although I do have an MBA, and like all investors I try to balance my stock picks between my intuitive sense of the company's future and the fundamentals.

I violated my own better judgement about investing in a company whose future success is, let's face it, unknown. However, I found the discussion board about this stock on Yahoo, and while most posters have a blatant agenda and there are loads of useless posts, there is some great due diligence about COIN there, including a few reasonable attempts at forcasting the company's prospects.

I decided that the COIN story is a good one, and timing is always so important for success. COIN looks to me like a good long term investment, so I bought it.

We'll see what happens. I disagree with your basic premise that investing in this stock is a mere Greater Fool phenomenon.

[TimothySykes]

Typical shallow financial journalism. I've been covering the stock day-by-day on my blog, it's simply the latest microcrap momo jumper, exemplifying the chart pattern that made me a millionaire before I could rent a car

[COINZMASTER]

IT IS MY LIFESTYLE CHOICE TO BE AND PROMOTE ORGANIC GARDENING AND FOOD/NUTRITION/HEALTH

I AM A LANDSCAPER,GROW AN ORGANIC GARDEN AT MY HOUSE FEET BY 80 FEET!I HAVE MADE MY OWN TEAS AND COMPOST/ORGANIC FERTS.COIN IS THE BEST TYPE OF FERTS!HAVE AN ENTIRE ORGANIC ORCHARD AND MY TOMATO SEEDS ARE FROM ITALY DATING BACK PRE 1900.I GROW HEIRLOOM VAREITIES MOSTLY AND ONLY!I NOW ABOUT THE SOIL HEALTH AND REMEMBER I SAID “IT’S ALL ABOUT THE BACTERIA”POST WHICH WAS THEN LAUGHED AT!NOW YOU ALL UNDERSTAND SOME MORE THANX TO MY POSTS IF YOU CAN READ AND WATCH LOL!TEST MY KNOLEDGE AND HANDS ON EXPERIENCE.

I ALSO RUN AN ORGANIC FARM AT MY HOUSE I HAVE CHICKENS,BANTAM’S,GEES... AMONGST OTHERS.I LOVE TO SAVE THE MANURE FROM CHICKENS AND LOVE THE EGGS!!TASTES WAY DIFFERENT!!AND YES MY ANIMALS ARE FREE RANGE NO PEN TILL NITETIME!!
MUCH RESPECT AND PEACE ON A GREENER PLANET CAUSE OF OUR GREAT INVESTMENT NOT TRADE!!!!
THANX 4 THE CREDIT WHERE CREDIT IS DUE!I AM AN ORGANIC EATER/GROWER/LANDSCAPE... LOVER/ORCHID GROWER/TROPICAL PLANTS IN NY LIKE BANANA’S,ELEPHANT EARS,CANNA LILIES,WATER PLANTS,PASSIONFLOWER VINES AMONG ALL SPECIMEN TREES,SHRUBS,EVERGREEN...
IT IS MY LIFESTYLE CHOICE TO BE AND PROMOTE ORGANIC GARDENING AND FOOD/NUTRITION/HEALTH

IM RICH CAUSE I LOVE COINZ DONT HATE DO REAL DD ON FWD REV.#’S WALL STREET LIKES A.G.R ACCELERATING REVENUE GROWTH!!!!$$$$$COIN IS THE ORGANIC FUTURE CALLED SUSTAINABLE !!!

#1 LOOK AT THE TINY MARKET CAP IT IS STILL UNDERVALUED BY FAR!!!!!THE STOCK IS CHEAPER THAN SAY NOEC BASED ON FWD EPS#’S AND MARKET CAP SO COINS SHARE PRICE IS NOT WHAT YOU SHOULD LOOK AT IT IS THE MARKET CAP!!!!!EST. I GET 4 CARBON CREDIT IS 10 MILLION+ ON 5 PLANTS!

ALRIGHT YOU THOUGHT COIN HAD 2-3 SOURCES RIGHT?

1. TIPPING FEES FROM FOOD WASTE

2. SALES OF FERTS FROM WASTE

3. MINI-COIN MACHINE SALES OF UNITS

4. SALE OF LIQUIDS FROM COLLECTION OF MINI-COIN’S

5. ROYALTIES FROM SALES OF MINI-COIN’S OVERSEAS/PLANTS THERE?

6. CARBON CREDITS$$$$$$$$$$$$$$$...

7. HOME COIN MACHINES???WHATS NEXT???EPS#’S TO BE HIGHER OF NEXT 5 YEARS FOR SURE.LOOK AT POT,TNH,AGU,MOS,ETC…WE COULD FLY FOR YEARS SON!ACCELERATING REVENUE GROWTH!!!!!!!!!!!!!!!

SHORTS ANY QUESTIONS?????????????...

YOUR SO COOKED AND YOU MUST BE SCARED FOR MONDAY WITH OR WITHOUT NEWS!!!!!!!!!!!!!!!!!!...

HOTTEST STOCK OF 2008 FOR GOOD REASON$$$$$$$$$$

PLZ COMMENT ALL LONGZ AND SHORTZ OK!

===================COI...

[Pco2c]

>>> I am not sure what initially caused the stock price to surge but the stock price has continued to go up on sheer speculation.<<&l...

Didn't you bother to look at the SEC filings? They show that the tipping fees on incoming waste and the revenue from the finished product could be quite significant.

>>>a quick check for the fundamentals of COIN and I found that the company doesn't have any<<<

Do you understand the term "development stage company?"

The warrant exercise, and the manner in which it is being conducted, is a strong positive. Instead of "calling" the warrants, which they are allowed to do, they are waiting and letting holders voluntarily exercise; gradually, which provides less of a shock to the market and allows an "emergency escape hatch" for the "silly bears" who shorted off this article!!!

This article does not even make an attempt to present the possible future appreciation that this stock offers. Thankfully, the many responses rebuts this ridiculous excuse for a serious jounalistic effort! What a biased and blindsigted slight of a company that is an example of what is good in America today!

[Branmasterflash]

Longs here have addressed most of the shorts misconceptions.
Here's some others though-
"They only have 300,00 in cash".
Wrong- They have 22 mil. in trust for completion and operation of the NJ facility and 6 mil. additional in just exercised warrants.
"Dilution".
With 4.29 mil shares they can afford dilution to raise cash for new plants.The NJ facility is projected to create a MINIMUM 1.00 EPS.With that kind of earnings potential some dilution for expansion is a no-brainer.They are actually going to REDUCE the share authorization at the next SH meeting from 70 mil. down to 40 mil. A nice encouraging sign of confidence and a very reasonable final share count.As long as dilution is orderly,for expansion or accompanies earnings growth the market will absorb it.
Obviously COIN had to prove that it's business model is as good as it appears and it's projections are not too optimistic.
Asa SH underpromise and overperform is the one piece of advice I'd give to any CEO.
But so far the shorts and bashers have failed to offer any sound reason to doubt these projections.In fact,like the article at the top of this page,it seems none of them have done even ten minutes of DD on this company.Just seems like they see a high flyer,glance at the financials for a second and start shoutin' SHORT THIS BLOATED PIG!
And they've gotten burned on the squeeze repeatedly.

And finally,as of today,march 8,COIN remains in the midst of an intermediate and longterm rally.The chart pattern that Dennis Gartman called one of the strongest he's seen in a while was not disrupted by friday's retracement.COIN has been advancing very fast and it's over extended short term.We have a broad market so weak we're on the verge of capitulation.So a further pullback is likely.I will view any panic selling as a great opportunity to get shares on the cheap.

[Rep07]

This may be a total scam. How are they going to segregate the organic vs. inorganic waste streams? Where is the operational trial plant proving the concept actually works at industrial scale? This is BS, it's going to come apart like a rotted pumpkin after about 3 months when it turns out there is no significant usable or saleable compost coming out the end of their municipal-level plant--hence no basis for the carbon credits, or the municipal contracts. This is one of those ideas that works in the fantasy world but not in the real world. In the real world someone would have to separate the food and green waste from the metal / plastic / paper waste. = lots of intensely expensive labor and machinery. You need a nice clean "ideal" input stream of organic waste for this idea to work. City garbage trucks don't bring you that! Sure they're eager to find someone who will take it--but when COIN is stuck with mountains of mixed garbage they can't really process because its quality varies so wildly, this scheme will just come apart in a few weeks.

[jnewman]

This is direct from COIN's website: Scam what scam

The EATAD process includes five steps. First, solid and liquid wastes are delivered to a fully enclosed facility. Second, the wastes are blended and screened to remove non-organic materials such as metal and glass. Third, naturally occurring bacteria “digest” the wastes large tanks. The introduction of heat and extra oxygen greatly accelerate the process compared to traditional composting. Fourth, the digested wastes are dried (solids) or concentrated (liquids). The fifth and final step is packaging of the solid and liquid products for wholesale and retail distribution.

[Purl Gurl]

Nice article, Phillip. COIN is in the process of crashing, as expected, down twenty-two percent as I type.

This COIN is a classic pump and dump which only the most naive of stock traders would miss. Clearly, a majority of today's online traders are quite naive.

However, COIN makes for good shorting profits.

Okpulot Taha
Choctaw Nation

[Purl Gurl]

Phillip, for trivia, this is a partial snippet of comments from an article I wrote about COIN back in January of this year.

---
The background and business plan of this company appears
to be legit. I have not found anything suggesting scam. Their
bond does suggest all is appropriate. What I read looks to be
good and well planned.

This company seems to good to be true, yes?

This announced dividend will have a mild dilutive effect, but
not too serious.

Only problem I see is this company's share value is two or
three times what should be for a developing company. No
revenues, no proven model, as of yet.

Volatility is high because of the very low share float. This stock
is also being pumped. I read people claiming a share value of
$100.00 per very soon. I do not think so!

I see a speculator bubble which will eventually burst....
---

Not too difficult to see this crash coming.


Okpulot Taha
Choctaw Nation

[User 162547]

What monumental news.
They are going to till up four acres of existing lawn, adding compost, other natural soil amendments and organic fertilizer before reseeding the area.
The team will return to the site frequently over the next two years to continue an organic maintenance program. The NPS and EPA will evaluate each of three plots:

WOW THATS BIG
SO BIG stock goes up 13% WTF ?????

[investor101]

I'm an investor in COIN. This company does have risk (what doesn't). This company also has huge upside. I think this company has products that will sell. In time, (key word TIME) this company will be a success. COIN needs the time to build and that is what it's doing. It is doing it quiet nicely I might add. It's the future and it's as "green" as it gets. COIN is a must buy! I bought it as long-term investment and I'm not done buying it. I will buy more and more as time goes on. My advice to anybody reading this..... Buy while it's cheap! In time, you will make 5x - 8x in this stock.

COIN is taking all the right steps to setup a profitable business by strengthening itself with experienced management, opening new recycling facilities, and announcing dividends... Among other things. If you want to know if the product is good, for those people that don't believe in Converted Organics products, buy some. Buy some of their residential fertilizer soil. Turf and Lawn, Flower and Garden.... Buy some, get a taste of what you could be investing in. Use it on your lawn, garden, flowers, etc.

convertedorganics.com/

If you want to really now what your putting your money or could be putting your money in, it doesn't get any better than this.

[boomstick]

Um, so they're building a giant septic tank?

[User 172811]

This company was just featured on CNBC this morning as a break through agriculture play - saying it featured a much cheaper fertilizer than POTASH! Why would they feature a company unless they have done their homework. Their NJ plant opened yesterday - which you never mentioned in any of your articles - because you don't do your homework. Thanks for driving the price down - I picked up 2000 warrants (COINW) at under 2.00 each.