Microcap Speculator

Microcap Speculator
Contributor since: 2005
@tbganesha: in what sense? HealthWarehouse shares are roughly where they were at the time of the post. Not a success (yet) but certainly not triggering covering.
@nouser: as I read it HEWA did not switch to a pink sheets listing, but rather to OTCQB. OTCQB is an alternate platform that I view as roughly equivalent to OTCBB, but it is run by OTC Markets (the same folks who own pink sheets)
James,
Great article, and nice spot on CIGX. Two questions:
1. do you think the downplaying of results was intended to keep the price low for the CEO purchase? Obviously the results had to be disclosed before the PP closed, or there would be an insider trading problem. But, if the press release had your headline he would have paid a much higher price. He also got a very generous price on the warrants (0.125 for 5 yr. at-the-money on a high volatility microcap). These are minor negatives. Overall, I agree that the CEO's participation in the PP is a significant and positive development.
2. what do you see as the endgame for CIGX with this product? Licensing/royalties to a nutraceutical distributor like Herbalife? Sales to an actual pharma co? Or sale of the entire technology or company?
disclosure: no position but intrigued
@saul: on Dec 28 before the first capital raise was announced CBEH traded at $7.40. $7 was definitely below market, even before considering the cost of included warrants. In my view the company has not explained why this was necessary for its expansion, considering that it already had almost $80M on the books: www.sec.gov/Archives/e...
@China Expert: good info - all reasons why I am long BSPM
@best: thanks for your comment. agree CBP has a checkered past - do you think this is not discounted at this point? I do not trust though -- I'll keep this one on a short leash.
@Tom: this is part 1 of 4 of a massive update which was clear on my website but edited out of SA. NUIN I never owned but WKBT I bought Dec 2010, sold in Jan 2011 for a nice profit, and repurchased last week. It will be in part 4 of the update.
@Griff9k: never meant that thestreet.com was a play on AAPL. TSCM could have done great things on the iPad and taken advantage of the popularity of that platform, but they blew the opportunity.
great reference. thanks Joe
@Joenatural, maciasi: good points...and all the more reason I like the risk-reward here. I'm continuing to accumulate.
Mario, agree the deals stink. They are not really funding anything in my view but avoiding writing off bad debt by calling it an exchange of shares. ALIF was a bad trade on my part and I put in sell orders when the technical picture discussed in the article broke down.
@LEGaLiZeIT: a fair criticism re ALIF. I'm sure you agree that a software company should have large intangible assets. After all, it sells intellectual property (software) not cars or washing machines. The receivables are more disconcerting and bear watching -- as I have repeatedly stated in other articles and comments. That said I put ALIF in the same group as most of the rest...risky, with a decent chance of paying off big and a not insignificant chance of burning investors. That's why I am using a basket.
@mario: thanks for your comment.
I agree that both the size of the receivables and the increase in share count are potential red flags and should be watched. However, I don't see that the shares are being used as a receivable funding mechanism. First, the dollars received over the past nine months from share sales is less than 4M, or roughly 1/4 the receivables increase. Second, as big as the increase in receivables was, according to the company's cash flow statement in the 10-Q that increase was covered by operating cash flow:
edgar.sec.gov/Archives...
Still, its something that shareholders need to keep an eye on. Thanks for pointing it out.
Mark,
You raise some good points, and I find the Party Gaming comparison especially interesting. However, I note that according to its investor page, Party Gaming trades at about 3.2x revenues, with a fat profit margin: www.partygaming.com/pr.... If Quepasa can post a half billion dollars in non-related party revenues like Party Gaming it might merit a similar valuation.
The million-dollar question: How do you see that happening? As I read the financials of Quepasa -- a decade old company, an octogenarian in internet years -- the company has virtually zero non-related party revenues.
One last point -- isn't the downside on a $10 stock closer to $10? I don't see a cash cushion or other reason to support a $5 floor if the company is unable to monetize its growing membership. A drop from more than $10 to well below $1 has already happened once before in Quepasa: bigcharts.marketwatch..... I don't think that happens now, but history prohibits us from declaring it impossible.
I appreciate the measured debate. Stay interactive.
@stocktrader7777: its a myth that otcbb shares cannot be shorted. Your broker may not permit, but many do.
I would pay $100 to see you two in a cage match.
@empire: How do you see your "brand loyalty" thesis evident in quepasa? If members were brand loyal, for the cultural reasons you discuss or otherwise, wouldn't you expect the average member to visit more than once per month? I don't see evidence of brand loyalty in the reported statistics.
@Graham and Dodd: well said. I agree 100%.
@Bluechip: good point. Lets work with your thesis that users are joining Quepasa for dating, and become inactive as they find true love on the site. Any basis for this, or numbers that would support? Also, if this is what is actually happening, how does it help Quepasa monetize? I just don't see any meaningful non-related party revenue streams yet.
@empire: you seem to miss my point. Its not that quepasa must fail. I'm not short, and do not assume that failure is a given. My point was that the *per-user valuation* comparisons being thrown around are grossly misleading because the users are counted differently and the user activity levels are vastly different. There are good reasons for investing in quepasa (including the strong uptrend that I recognize), but the false comparison of per-user valuations is not one of them.
@gebby: Quepasa is a lot of things -- a growth story, a stock with a good uptrend, etc.
But its not a safe haven, and I wouldn't encourage anyone to view an OTC BB stock with the majority of its revenues from related parties as a "safe haven" or to consider it for an investment of anything other than risk capital.
disclosure: no position (I was long until taking profits yesterday for reasons I describe in this post: I took profits yesterday for reasons I describe here: microcapspeculator.net.../)
Took profits. Read why here: microcapspeculator.net.../
a lot better! Will have something updated on the juniors shortly.
@Arnold, Petrich, tenor: thanks for your comments. You each highlight the hopes for imminent commercialization that is reflected, I believe, in the stock chart. I remain skeptical, but if broad commercialization does drive significant revenues to REFR's bottom line I will be the first to acknowledge.
@Ian: thanks. you wrote <<Only 2-3% of the members use the site on a daily basis,>>
where do you get this info from? At any rate, if that is the case, it makes a whole lot more sense to focus first on revenues and second on unique visits. The inactive portion of the membership cannot be monetized.
Thanks for your comments. The debate shows an important point: time horizon matters. I put the China microcaps on as a short-term trade a few weeks ago, and took profits as a matter of discipline. If I had entered these as long-term investments, my decision would likely be different.
Each still looks good fundamentally. I will consider buying into a pullback.
Ian,
Your month-by-month spreadsheet lists 16.3M "unique visitors" in the month of September. If this statistic is accurate it would be highly significant as it would show that the vast majority of the ~20M members visited during the month, an activity level that any social network would find remarkable.
But when I looked at the company's releases, it said 16.3M "unique visits," not visitors.
finance.yahoo.com/news...
If you look at the definitions in wikipedia, which are consistent with how I think most web users understand the term, there is a huge difference:
"A Unique Visitor counts once within the timescale [note: here, monthly]. A visitor can make multiple visits."
en.wikipedia.org/wiki/...
Can you clear up this discrepancy?
thanks, ms
[disclosure: I have a small long position in QPSA at present]
@best: thanks for the info. Is that your own eps estimate? I am using management's #s from the last report.
Ian -
Nice article/analysis. The gap up today was enough to bring me in on the long side (have had no position for months but my last trade on the stock was an unsuccessful short).
The recent announcement disclosed $7.3M in DSM bookings, up from $800k announced in March. Do you have any sense of: (1) how firm those bookings are; and (2) when they will be realized as revenue?
thanks, ms
@seasaw64: there is obviously a risk of fraud in all microcaps, and that risk is amplified in Chinese microcaps. Are you suggesting there is a specific problem with Longwei, and if so what is it?
@Ishortyou: as I understand management's comments, they buy and sell at prices which are fixed by the Chinese state, and adjusted every 22 days. Do your own due diligence, but I don't believe they share the same oil market exposure as US midstream cos.
Ryan,
You asked re what tool I would use to gain exposure to a specific sector. That would depend on the sector. For example, if it was the tech sector I would probably use either 1x ETFs or Nasdaq futures but at well under the permitted leverage. If it was something more granular, like homebuilders, I would use either a 1x ETF or if I wanted leverage, an option spread on a 1x ETF or sector leader.
The point of my article was not that sector bets, or even leveraged sector bets, are bad. I only aimed to demonstrate how poor the 3x ETFs are as tools to make extended leveraged bets.
It is true that the companies admit they are not designed for overnight use. They also admit that there will be tracking errors. However, a lot of HNW investment advisors are currently pushing those tools as a means of making a long-term leveraged market bet.
I hope that I have addressed your question. If not feel free to shoot me an email or comment on my blog (I follow those a little more closely and will respond more quickly).
@ILTBF: There is no doubt that sg&a has ballooned as a result of the increased sales personnel. That expense is reflected in the company's Q and my analysis, as are the results that the sales team have achieved to date. If you are asking whether I have factored a projection of increased future sales growth as a result of these efforts, I have not. While I hope the company's sales push is successful, I am going to wait to see the actual numbers rather than anticipate a particular result.
NOOF reported its highest quarterly revenues ever last quarter. So while there may be some logical appeal to your idea that the internet may "crush" these businesses, the facts point in the other direction.
Fred, you bring up an interesting point. If you look at the short form prospectus -- available on sedar.com because KRY is a Canadian company -- it looks like the underwriters are purchasing the shares for distribution to retail investors. In other words, I see no indication that a notable private investor or insider is taking a stake.
Sorry for the html - should read microcapspeculator.net