Short Houston American Energy Corp, HUSA, $10.54
We are going to re-enter our SHORT position in Houston American Energy Corp (NYSEMKT:HUSA) today. After shorting HUSA once, and covering last Friday before the earning's bounce, we continue to believe the company is overvalued with a 327M market capitalization. Sabrient has a hold rating on the stock.
We wrote on July 1, 2010:
Houston American Energy Corp. engages in the exploration, development, and production of natural gas, crude oil, and condensate. It primarily focuses on properties located in the United States. Last Monday (June 28), Sharesleuth.com published an article about HUSA expressing a number of concerns, including concerns about the management team’s history, questionable valuations on the Columbian estimates, and significant ties to people with prior SEC troubles. From Sharesleuth.com:
A SPECTACULAR DEAL?
The gains are linked largely to Houston American’s deal last October for a 25 percent interest in a Colombian oil prospect controlled by SK Energy Co., one of Asia’s biggest producers, refiners and marketers.
Houston American said in an investor presentation and subsequent Securities and Exchange Commission filing that the prospect was estimated to hold anywhere from 1 billion to 4 billion barrels of “recoverable reserves.”
The latter figure exceeds the official proved and probable reserves for all of Colombia, and stands as one of the most audacious claims by any of the energy companies operating in that country.
Houston American did not cite a consultant’s report or any other independent study as the source of its estimate. Nor did the company offer any qualifiers, such as the percentage of those reserves it has a reasonable certainty of producing…
So, for all the same reasons we shorted HUSA before, we are jumping back in. In addition, the 10-Q released on August 16 stated that the board of directors authorized bonuses of $637,500 and pay increases of 10% for senior management. There were only three full time employees (one new employee just hired), according to Yahoo's profile, so we take this to mean that either the CEO and CFO, or the CEO, the CFO and other employee, are all getting raises and bonuses. Moreover, the company declared a 0.2% dividend which seems as premature as the bonuses.