There has been no shortage in the wave of coverage of the revolution in smoking e-cigs.
For the investor, there is an ample amount of information about market size potential growth, in the U.S. the market for e-cigs is projected at ~$300 billion and globally is anticipated to reach over ~$700 billion in sales, while headlines of mergers and acquisitions make clear the consolidation in the industry.
Yet, regardless of the strategy an investor employs in the smaller cap e-cig companies, any play should be set against the backdrop of what has been driving this market. In a word: technology.
The appeal and proliferation of the e-cig is the ever advancing changes and innovations that launched the nascent product into the growth market that exists today. For investors looking for volatility plays, the small cap e-cig companies that are working hard to achieve market share are leveraging this core driver to capitalize on growth.
In what may be considered the second generation of e-cigs, most look like traditional cigarettes and have basic attributes:
- A lithium-ion battery (chargeable or not, depending on if the unit is disposable or not)
- An LED illuminator that indicates the unit is 'ON'
- A cartridge that contains liquid nicotine and other ingredients
- A cartomizer that houses the heating chamber, which vaporizes the nicotine for inhaling
- An airflow sensor.
For investors who like the nitty-gritty of their investments, the core technology that makes the e-cig work is its heating element, through which electricity-by way of lithium battery-is sent through a metal or ceramic resistant material to conduct heat. Once the heating element reaches approximately 150 degrees Fahrenheit, approximately .005 milliliters of liquid nicotine is produced for the vapor effect.
There are three companies that are working to improve their technologies that at the same time are witnessing advancing stock price climbs. Interestingly, all three have undergone a decline in share value over the 52-week period with a recent return to growth. We will get to that soon.
American Heritage International, Inc. (OTC:AHII) is concentrating it competitive advantage on its disposable e-cig, and by creating what the company refers to as "authentic, true-to-life flavor." AHII is the only manufacturer of the three e-cigs covered here that uses all U.S. based ingredients. The company is also among the very first to use a soft filter tip that gives the customer the feel of a standard cigarette.
Vapor Corp., (NASDAQ:VPCO) has also filed a U.S. patent for its soft-tip filter. The flexible tip utilizes silicone as one of the elements that creates the soft feel. VPCO also has filed for a patent on its new battery which can be recharged anywhere simply by shaking the unit rather than plugging into an outlet which is required by competitors. Vapor's public relations team also says that other new technologies are on the way. One patent pending is their "new configuration for the airflow sensors." VPCO reports that their new configuration will seal the battery to "enhance the reliability and performance of the electronic cigarette."
For the smoker that seeks brand identification, Victory Electronic Cigarettes (ECIG) may very well be their choice. The e-cig company is in fact relying on smokers who brand-identify, and thereby continue as a repeat customer. Their technology and marketing reflects this. The product line consists of a series of kits that come with a varying array of power options, such as wall charger, car charger, USB charger and rechargeable battery so that the loyal customer is never without a power option.
ECIG says the company is also working on evolving the taste, feel, weight, function, performance, construction and components of its product line.
In order to drive these new technologies, each of the companies has engaged in aggressive distribution campaigns, while their share prices have seen an upward return to growth:
|Company||52-Week Low||52-Week High||Share price in U.S. dollar at: March 12, 2014|
|American Heritage International||.05||1.30||1.29|
|Victory Electronic Cigarettes||.56||60.00||14.30|
American Heritage International has recently been in discussion with a distributor to reach approximately 25,000 retail outlets. Meanwhile, the company recently announced that for the first stage of its retail strategy, it blitzed 400 convenience stores. Once the initial distribution is fulfilled, AHII will be in a position to ink a major U.S. distribution contract with one of the top 15 distribution companies nationwide.
Vapor Corp., meanwhile, sells its product line in over 60,000 retail outlets in the United States, while the company's market share position is at number three, behind big players such as Njoy and Blu.
Victory Electronic Cigarettes too recently announced that the company has completed its merger with FIN Branding Group for distribution in all 50 U.S. states with reach to more than 50,000 retail outlets.
Retail distribution is the key to the dwindling market of just 200 independent smaller e-cig companies. The goal: shelf space. The completion is lit.
Investors should be aware that each investment carries its own risk. Some equities are more speculative than others. In particular, investors should be aware that additional risks may exist for some smaller cap and microcap stocks, which trade at a discount when compared to stocks in the same sector, as these stocks may have notable company risks that could lead to lower valuations. Stock price manipulation may take place in the case of microcap stocks, as both a result of fewer firms trading the equities, or high distress within a specific company or market segment. Further, liquidity risk may be introduced in some instances where small trading floats and low volume creates large spreads and high volatility. Investors should thoroughly investigate any stock by performing due diligence before trading.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.