Sometimes there are stocks out there of companies that have such bad financial statements, poor execution and operations, and just simply make one wonder “what the heck am I doing investing in this entity?”.
However, in the world of the public marketplace, if you pay a price that assumes a terrible operation and instead the actual performance is simply mediocre, you will make money.
I’ve taken a 3% position in one such company. It is traded in the USA, definitely in the microcap category (although historically it has been well in the triple digit millions category in terms of market capitalization), negative tangible equity, negative gross margin, etc, etc. They are on the threshold of not being able to maintain their NYSE listing, and will likely have to cure that one whenever they release their 2014 audited financial statements.
I’m surprised they haven’t issued a going concern statement yet, although in their 10-Q for September 30, 2014 they did state they have sufficient liquidity for the next 12 months of operations. We’ll see if that changes in the 10-K.
If you look at the stock chart, it looks like the elevation profile of a long dammed river.
Anybody investing in this company is clearly nuts and the stock trades that way.
However, they do have a strategic asset which is not listed on their balance sheet that would cost several billion if somebody else were to do it from scratch. Right now that asset is not profitable, but it is plausible that in the medium term future that it could be (and hence worth a fortune since it would be the low cost producer of this particular item that I do not want to mention otherwise I would give away the story).
Again, the stock trades like it is going to bankruptcy. Financially, it looks like that they are on life support. However, if they spend enough time treading water, it is conceivable that the valuation could be 50 times higher than what it is presently.
A small position is warranted. But I’m too embarrassed to admit what it is I’m investing in.
Only one thing came to mind but no way it’s that. I’d hazard a guess, but leuse lips sink ships.
Oh, I love your pithy commentary.