Yep, I figured something like this was in store for penny stock Purespectrum Inc. (PSPM). I just expected there to be a clear reason for it. Purespectrum made good on a bearish wedge shape I pointed out on June 9th by breaking under support at 55 cents a few days later. On Friday, the stock tumbled 14% to close at 36 cents. That’s a 33% downside move. Hope you caught some of the gain.
What’s weird about the whole thing is that there was no clear reason for the recent leg of the drop. Maybe the other shoe will drop later.
Or, maybe this is a case of ‘buy the rumor, sell the news’ - the company has certainly had enough of it lately (all of it good). Purespectrum’s dimmable compact fluorescent lamps (CFL) have generated a ton of interest from utility companies. Eighty utility companies have already requested samples. There’s no word yet on what kind of revenue to expect, but any at all would be miles ahead.
The question is, how much revenue does Purespectrum need, and how soon do they need it?
Just for perspective, the company’s current market cap is about $62 million. I’m not even going to bother talking about earnings yet, as I don’t expect there to be any in the foreseeable future. Sales wise though, the company needs to drive $20 to $30 million in annual revenue to justify the stock’s price.
The company seems well-polished, and their fluorescent lamps are probably everything they’re cracked up to be. And, I have to respect a company that stays in touch with its investors about what it’s doing to succeed. That’s a bit of a two-edged sword though.
What I’m talking about specifically is the recent retention of the Musser Group to act as growth consultants.
There’s not a thing wrong with consultants, but it makes me wonder… considering Purespectrum’s fluorescent lamp business just got off the ground, why do they need consultants this early in the game? Maybe they should learn the biz and get it up and running first before worrying about how to tweak it. Or, does the company need a consultant just to get going at all? Maybe I’m paranoid, but it’s a fair question.
Anyway, after PSPM’s plunge on Friday, it wouldn’t be crazy to take some profits if you were short. I wouldn’t add any new short trades though. If support at 31 cents breaks down though, I wouldn’t be surprised to see another round of selling.
Conversely, there’s a falling resistance line that could signal a rebound if crossed. If it’s not crossed, any retest of it may be a good short entry point.
Don’t worry about any valuation models or projection… this isn’t that kind of stock yet. Just trade it.
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