Thursday 30 September 2021

A Simplified Analysis of 2020 Hype Stocks

Here's a little chart of some of the more talked about hyped up penny stocks/small caps over the last year. CBDT, CMC, FOBI, DOC, PKK and I added in one that I like recently, SAY. With each company's last reported quarter on profits and net income, current stock price and performance between its 52-week high and low. The lessons should be apparent.

The better the financial performance, the better the staying power of the stock. PKK is the only one that has pulled a profit and has more revenues than the rest combined last quarter. And no surprise, it has been a high flyer that has kept most of its gains, up over a 10-bagger, but only off 33% from its high.

DOC is an interesting case. It ran in early 2020 so its run is no longer reflected in the SP as it's sitting at its 52-week low. It was hyped as a revenue play, which it was, but has come off as it's apparent that it has a while to grow before becoming profitable, though it is within reach. It's "only" off 55% from its high, which in penny stock world and compared to the others, is actually pretty good staying power. That's what happens when you buy stocks with actual revenues.

CBDT is like a less successful DOC. Some revenues, but much less than DOC. While the net loss is smaller, it's a larger percentage of the revenues, indicating that CBDT has further to go than DOC to reach profitability. Although it has some revenue, it was WAY overhyped compared to its near term business prospects. Therefore you see it 83% off its high, but still a good performer for those who got in at the bottom.

CMC is what it is, and anyone who understands investing on financials versus hype saw this coming a mile away.

The biggest and most important lesson for new traders to look at is FOBI. FOBI has PKK-like stock price performance with CMC-like financial performance. What's the likelier conclusion here? That FOBI is the magical stock that's going to buck the trend? Or is in the middle of buying hype that's going to come crashing down? Yes I know FOBI signed some contracts with numbers attached. I know it'll have some revenues in the near term. CBDT had *some* revenues and *some* contracts as well. What happened to it?

Finally, the last one SAY. It gave back much of the run it had earlier in the year, but in terms of financials it's pretty decent. A distant #3 in revenue of the six stocks and the one closest to profits behind PKK.

The adage in the investing world but particularly in penny stocks is to buy low, sell high. Based on this we can conclude:
CBDT - hold or moderate buy. If you held on for this long, CBDT has cratered to the point stock price wise and improved to the point financially where it's no longer an overvalued piece of crap. I personally wouldn't buy it, but at least in the adage of buy low, sell high, you're much closer to the former than the latter.

CMC - moderate sell. It's beat up as badly as CBDT, but there's no evidence to support a higher SP in the numbers or business model. You're basically praying the technology issues eventually work out and the churn in execs is a red herring.

FOBI - strong sell, up on hype and has yet to prove out a profitable business model. It's where CBDT was back in February.

DOC - buy if you believe in the company. It fits the adage of buy low, sell high right now.

PKK - hold to moderate buy. The opportunity to "buy low" on PKK when I was hammering the table on it a year ago is gone. But the numbers clearly indicate a business on the right path so you're still probably in cheap at this point. You're better off with this stock than FOBI, that's for sure.

SAY - fits the adage of buy low well. Significantly off its hype stock price, not that far above its low. Has some numbers to back it up.

P.S. I know I didn't bring up market cap. I wanted to simplify this analysis as much as possible. Adding in market cap and financial metrics based on it would have supported the same conclusions for the most part anyways.