IPO Update: Adamas One Finalizes Mini-IPO Plans

Oct. 04, 2022 1:07 PM ETAdamas One Corp. (JEWL)

Summary

  • Adamas One has filed proposed terms for its $23 million U.S. IPO.
  • The firm manufactures synthetic diamonds for industrial and consumer markets.
  • JEWL has just begun sales and expects IPO investors to pay a high price for its growth potential despite being undercapitalized.
  • I'm on Hold for the JEWL IPO, although the low nominal share price may attract day traders.
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Pile of Faux Uncut Diamonds Isolated on a Black Background

ryasick/E+ via Getty Images

What Is Adamas One?

Scottsdale, Arizona-based Adamas One (NASDAQ:JEWL) was founded to acquire the assets of Scio Diamond Technology Corporation, including machines, patents and related intellectual property related to chemical vapor deposition technologies and HPHT technologies.

Management is headed by Founder, President, Chairman and CEO John, "Jay" G. Grdina, who has been with the firm since inception in September 2018 and was previously founder of AMMO (POWW), a publicly traded ammunition company, and CEO of NOHO, a lifestyle beverage company.

The company's primary offerings include:

  • Jewelry diamonds

  • Industrial diamonds

Adamas One has booked fair market value investment of $28.7 million as of June 30, 2022 from investors including Diamond Technologies, LLC, Pubco, LLC and others.

The company has produced minimal revenue, commencing commercial sales of its products only during the six months ending June 30, 2022.

Adamas One's Market & Competition

According to a 2021 market research report by Allied Market Research, the global market for synthetic diamonds was an estimated $19.3 billion in 2020 and is forecast to reach nearly $50 billion by 2030.

This represents a forecast CAGR of 9.4% from 2021 to 2030.

The main drivers for this expected growth are a demand for more environmentally-friendly diamond products, more responsible sourcing of diamond supplies and the need for advanced technologies for the applications of optics, electronics and lasers.

Also, the market for synthetic diamonds is segmented into size: below 2 carat, 2-4 carat and above 4 carat. It is also segmented as to colored or colorless.

Major competitive or other industry participants include:

  • US Diamond Technologies

  • ABD Diamonds

  • Clean Origin

  • De Beers Group

  • Diam Concept

  • Diamond Foundry

  • Henan Huanghe Whirlwind Co.

  • Mittal Diamonds

  • New Diamond Technology LLC

  • Swarovski AG

  • WD Lab Grown Diamonds

Adamas One's IPO Date & Details

The initial public offering date, or IPO, for Adamas One has not been indicated by the company or underwriter.

(Warning: Compared to stocks with more history, IPOs typically have less information for investors to review and analyze. For this reason, investors should use caution when thinking about investing in an IPO, or immediately post-IPO. Also, investors should keep in mind that many IPOs are heavily marketed, past company performance is not a guarantee of future results and potential risks may be understated.)

JEWL and selling stockholders intend to sell a total of 4.9 million shares of common stock at a proposed midpoint price of $4.75 per share for gross proceeds of approximately $23.3 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO at the midpoint of the proposed price range, the company's enterprise value at IPO (excluding underwriter options) would approximate $78.4 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 25.8%. A figure under 10% is generally considered a 'low float' stock, which can be subject to significant price volatility.

Per the firm's most recent regulatory filing, it plans to use the net proceeds as follows:

$8.4 million for construction management and operating expenditures, including preparation and leasehold improvements at a 23,485 square foot manufacturing and production facility already under lease in Greenville, South Carolina near our current facility; purchase, commission, and phase into operations of a larger number of growers; purchase, commission, and installation of additional lasers used in the diamond refinement and seed cutting processes; and purchase, commission, and installation of HPHT technology and equipment for color enhancement and seed independence;

$0.6 million for continued research and development related to both developing new products and maintaining and seeking improvements to existing products, including hiring key personnel and purchasing equipment and material for research activities;

$1.5 million to upgrade sales and marketing capabilities, including public relations, advertising, software, and additional sales and marketing staff, along with the necessary personnel in administrative, finance, accounting, and legal to support our company being a public entity; and

the remainder for working capital and other general corporate purposes, which may include paying off all or part of our third-party promissory notes, accounts payable, and accrued liabilities in the normal course of business.

Based on our current operations and scheduled expansion plans, we believe that our existing cash and cash equivalents, together with the anticipated net proceeds from this offering, will enable us to operate our existing manufacturing operations and administrative functions and also provide the planned funds for capital expenditures through the fiscal year ending September 30, 2023.

(Source - SEC)

Management's presentation of the company roadshow is not available.

The firm is not currently subject to any outstanding legal proceedings.

The sole listed underwriter of the IPO is Alexander Capital.

How To Invest In The Company's Stock: 7 Steps

Investors can buy shares of the stock in the same way they may buy stocks of other publicly traded companies, or as part of the pre-IPO allocation.

Note: This report is not a recommendation to purchase stock or any other security. For investors who are interested in pursuing a potential investment after the IPO is complete, the following steps for buying stocks will be helpful.

Step 1: Understand The Company's Financial History

Although there is not much public financial information available about the company, investors can look at the company's financial history on their form S-1 or F-1 SEC filing (Source).

Step 2: Assess The Company's Financial Reports

The primary financial statements available for publicly traded companies include the income statement, balance sheet, and statement of cash flows. These financial statements can help investors learn about a company's cash capitalization structure, cash flow trends and financial position.

My summary of the firm's recent financial results is below:

The firm's financials show little revenue, significant operating losses and growing cash used in operations.

Free cash flow for the twelve months ended June 30, 2022 was negative ($1.7 million).

The firm currently plans to pay no dividends on its shares and anticipates that it will use future earnings to reinvest back into its growth initiatives.

Step 3: Evaluate The Company's Potential Compared To Your Investment Horizon

When investors evaluate potential stocks to buy, it's important to consider their time horizon and risk tolerance before buying shares. For example, a swing-trader may be interested in short-term growth potential, whereas a long-term investor may prioritize strong financials ahead of short-term price movements.

Step 4: Select A Brokerage

Investors who do not already have a trading account will begin with the selection of a brokerage firm. The account types commonly used for trading stocks include a standard brokerage account or a retirement account like an IRA.

Investors who prefer advice for a fee can open a trading account with a full-service broker or an independent investment advisor, and those who want to manage their portfolio for a reduced cost may choose a discount brokerage company.

Step 5: Choose An Investment Size And Strategy

Investors who have decided to buy shares of company stock should consider how many shares to purchase and what investment strategy to adopt for their new position. The investment strategy will guide an investors' holding period and exit strategy.

Many investors choose to buy and hold stocks for lengthy periods. Examples of basic investing strategies include swing trading, short-term trading or investing over a long-term holding period.

For investors wishing to gain a pre-IPO allocation of shares at the IPO price, they would 'indicate interest' with their broker in advance of the IPO. Indicating an interest is not a guarantee that the investor will receive an allocation of pre-IPO shares.

Step 6: Choose An Order Type

Investors have many choices for placing orders to purchase stocks, including market orders, limit orders and stop orders.

  • Market order: This is the most common type of order made by retail traders. A market order executes a trade immediately at the best available transaction price.

  • Limit order: When an investor places a buy limit order, they specify a maximum price to be paid for the shares.

  • Stop order: A buy-stop order is an order to buy at a specified price, known as the stop price, which will be higher than the current market price. In the case of buy-stop, the stop price will be lower than the current market price.

Step 7: Submit The Trade

After investors have funded their account with cash, they may decide on an investment size and order type, then submit the trade to place an order. If the trade is a market order, it will be filled immediately at the best available market price.

However, if investors submit a limit order or stop order, the investor may have to wait until the stock reaches their target price or stop-loss price for the trade to be completed.

The Bottom Line

JEWL is seeking public capital to fund its development and commercialization plans across all aspects of its operations.

The market opportunity for synthetic diamonds is large and expected to grow at 9.4% CAGR through 2030, but the market is characterized by several major players from established diamond firms.

Alexander Capital is the lead underwriter, and the only IPO led by the firm over the last 12-month period has generated a return of negative (85.2%) since its IPO.

The primary risk to the company's outlook is its tiny size in an industry with significant competition among large market participants.

As for valuation, management is asking investors at IPO to pay an EV/revenue multiple of over 71x, so the IPO is priced for a much higher revenue run rate that prospective investors would have to be comfortable that management is able to produce soon.

Given the firm's tiny capitalization, lack of significant revenue or revenue history and high price of the IPO, I'm on Hold for it, although its low nominal share price may attract day traders.

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This article was written by

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This report is for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research for your particular financial situation before making any decisions. IPO investing can involve significant volatility and risk of loss.

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