Converted Organics: Story's Over, Time to Get Out

I wrote an article about the foolish speculating in Converted Organics (COIN) a couple of months ago, and just as I predicted, the greed that was driving up the stock price turned to fear and the stock price took a huge dive. However, the stock price rebounded from its lows and held up for a little while but is now starting to sell off again.

The reason for the most recent sell-off is the company issued a dismal earnings report last Friday. Converted Organics reported revenue of $260,000 and a loss of $2.4 million. That is pretty egregious. Some of the greater fools that are still buying Converted Organic are going to say that this earnings report is better than the last earnings report because the company actually reported some revenue. However, this company was actually a better speculative investment when it had no revenue.

If you do not understand this, let me give you a lesson in speculating. When you buy a company such as Converted Organics you are buying the story not the actual stock. The reason Converted Organics made such a big run was because it had a small float and was in a hot sector. It also helped that the company was a “developmental stage” company and had no revenue. This meant that people could justify their purchase of Converted Organics because of the potential of the company.

Now however, the hype has faded away and the brutal financials have to be taken into account. The reality is that Converted Organics is nowhere near making a profit. On top of that, the chart is starting to get pretty ugly. I wouldn’t be surprised to see the stock price of Converted Organics fall all the way back to the $2.50 range in the next several months.

The lesson here is to trade the story and the momentum when it comes to super speculative stocks like Converted Organics. When those to things start to fade away it is time to get out.

Disclaimer: I have no position in COIN.

Comments

[r3cole3:]

I think they should still be considered an early development company. The gloom is not near as dark as you make it seem. They are still pooring money into the development of a new plant and when complete, the scene will start the change. Rome wasn't built in a day, and neither was COIN.

2008 May 20 09:00 AM

[sergios:]

i think that you don't have no idea about this company.the brigth future of coin will came soon on the opening of nj plants...but of course you don't even mention or probably you don't even know...foolish comments in this article and no fact....phillip lyon lier....

2008 May 20 09:06 AM

[Barbarro:]

I have to agree with Sergios - you have no insight or reasoning, just a series of opinions formed more in spite of, than based on, company data

2008 May 20 09:35 AM

[surfgrrl:]

Philip Lyon must be unaware that until the opening and ramping-up of operations at the NJ plant this business will not be in a position to have positive earnings-the companies they have purchased are ancillary to the operation of the NJ plant, not the basis of their business. COIN is still in a "developmental "phase, and to suggest otherwise is irresponsible, IMO. When the completion of that plant occurs, there will be ample opportunity to accurately evaluate the viability of it's business plan.

2008 May 20 10:19 AM

[User 172811:]

Thank you for giving me the opportunity to back up the truck this morning - I have been waiting for a pull back so I could purchase more! Those who do their research, visit the web site and truly understand what this company is about will prosper. Phillip seems to have fun writing shallow articles with no research. Pick up some shares while you can!

2008 May 20 10:37 AM

[RobS:]

Egregious - good word - although it's more apropos of your "article" than anything having to do with Converted Organics' financial performance or share price performance. You acknowledge that this is the first earnings report to show revenue. However, you completely left out the fact that their principal factory is nearing completion, and that by the company's own admission, they would not be profitable until the New Jersey factory opens and then, about 6 months out, achieves maximum production.

Your "journalism" has an agenda - to drive down the share price of this company. You might not have a position in Converted Organics at the moment, but you definitely have an agenda.

2008 May 21 01:27 PM

[sergios:]

after few comments about your article seems to me that none is agree with you about coin....i wouldn't be surprise if this is your last article in seeking alpha...time to change job mister phillp lyon....better if you get a life and plane a nice tryp in europe...enjoy yourself and stop bashing.....good luck for your next job!!!!!

2008 May 21 01:46 PM

[Doctologist:]

Let's face it, this stock is obviously overbought. I do think that the price will come down, $2.50 is quite a stretch considering the potential of this young company. With everyone in the market being intimidated every day by a new record high oil price the focus on everything alternative and innovative is sure to expand. That brings us to COIN, a very sensible alternative to effective yet counterproductive fertilizers, I would almost say that they are the BIG OIL of the agriculture business, once you're hooked, you're hooked. But alas an amazing and brilliant idea evolves from our current dilemma, why not use our own trash to grow our food. "It's beautiful, and it's about time". I'm sure some sober Native Americans might agree. Back to what I was saying, this company is sure to explode if they can prove themselves to be successful and most importantly profitable. I think that at less than $10 a share at this point is a steal and a definite must buy. Of late they have been splitting out shares as an incentive to buy a few. Buy 20 get one free is something that is going to pay off in the long run. I also have my doubts because once you have been burned, you've been scarred forever. This stock may require some intestinal fortitude but if you feel that this evolution of the way the world must sustain itself is for real, then you must believe that Converted Organics is on the brink of creating massive demand for this type of product. Not only will they be replenishing the Earth naturally, they will be leaders in food waste disposal. How sweet can it be. If I had money, it would not be wasted by COIN, it would be fertilized. I love to watch it grow:) Thanks for reading, and just remember that the most intelligent people come up with their own ideas.

2008 May 21 10:54 PM

[hershy:]

you are the greatest fool here imo, you have no idea about this company, products, projects, revenue estimates, profit margins, etc,
in any case, smart investers will buy as much they can at this level's,
yes, the cheaper the better...i wish it goes to 2.50...but there is no big chence to that, at the worst, count of 5-7 level, just watch and see.

2008 May 25 03:56 PM