Part 2: I wanna be rich: Coal is a makeup product!
Last month I blogged about how "mailers" can really drive stock prices.
Here's another example.
I've been "playing" American Power since November. It's on it's fourth cycle (large up or down swing) which is rare for a reverse merger OB stock that is living off of Press Releases and apprarently multiple of stock recommendations from "newsletters". More than 20 Million shares traded hands in Feb already. It's rare to see a stock driven by promotional stocks have so many cycles and such high volume.
I've been learning over the years that you can't "unconvince" someone who has made up their mind about an equity. American Power does not have an active Yahoo board. When available, I enjoy reading the views on these type of equities. There is usually 2-3 regular posters who seem to have lots of faith and inside information. They are on first name basis with IR/PR/CEO/CIO and lots of officers the company doesn't even have. What I do find is that the handful of naysayers who post on the boards are immediately labeled shorts and attacked. The two groups spar back and forth and "new investors" try to sort things out and ask questions that quickly get muddled. Why would you post on a board if you believed something about the presentation of the equity was "too good to be true"? Why bother? Better still, why ask questions if you're curious on a Message Board in the middle of all that obvious muddling. Why bother to blog about it or pitch it here on CAPS if you weren't a proponent? Clearly you (I) must be SHORT!
When I blog or pitch about an equity whose valuation doesn't align with it's market price, especially one with "exploratory" all over their SEC filings and no financial history accumulated, I'm NEVER short. I read what well known shorters say when I run accross a link someone posted, but I don't follow shorting as an investment thesis. If the company is larger and more mature, I might buy Puts, but that's a completely different investment philosophy and isn't available on these type of plays. So why do I do it?
ONE: It's "fun" to analyze exploratory company's and reverse shells. Reverse shells are someone either buying another company's ticker to short cut the registration process or a company that uses it to change business directions. Sometimes it's hard to follow if it's really a "new" company formed with other income/expenses that will "merge" in that will start a new set of financials, board of directors, CEO and offices, making the old ones obsolete, or if the company is really the same with the same meager cash and officers, but a new "hobby"...er, I mean new business opportunity.
TWO: Believe it or not, it's a community service. If someone can't be unconvinced, then maybe when their investment falls through the floor they will look back and reflect on warning signals. Maybe after 2-3 times of losing it all speculating they will "season". What do I get from adding to someone's investment knowledge? Don't know. Isn't that whast 90% of us are here for??? Give a little, take a little?
One should dig as deep as they can on any equity they putting hard coin against.
I try not to pass judgement on whether something will end up being successful or not. Others often will, but I think it's sufficient just to ask if the share price aligns with valuation and if it's investor grade at that price? I can't tell, for example, if American Power will every mine coal or successfully resell the assets, although I may have opinions. They are paying a consultant $15,000 per month to active "advance the Company's PACE Coal Project in Montana, including by way of strategic partnership, joint venture, sale of all or part of the asset, strategic financing or other transaction (collectively, the "Transaction"). " (1 Feb 8-K).
One should be wary when:
1. Along the lines of Nubmer TWO: In particular one should dig deeper if there are paid promotional mailers out on the equity. True, some may need some help to get their name out, but any serious company should be able to rise on their own merits if they are patient.
2. One should dig deeper if shorts are attacking it. While they may be wrong, many times they are right. When they are wrong, the stock price will still suffer, sometimes for long periods of time and adding or subtracting your hard earned coins could benefit from some timing.
3. One should dig deeper when a company commands a multi-million market cap, but their cash flow in their annual report is summarized by:
"Negative cash flows for the year ended September 30, 2010 was due to the purchase of fixed assets in the amount of $4,957, website in the amount of $31,191 and property in the amount of $350,000. "
If they have to tell you they bought office equipment and a website and the website was 8% of thier annual expense, FOLKS, be WARY!
4. Small amounts of cash exist from share offerings to indivduals and/or they exist or existed in the past from small loans from relatives or company officers.
"Net cash flows provided by financing activities were $1,104,790 and $9,883 for
the year ended September 30, 2010 and 2009, respectively. Positive cash flows
for the year ended September 30, 2010 were due to proceeds from the sale of
common stock in the amount of $900,000 and proceeds from a loan in the amount of
$200,000. Positive cash flows for the year ended September 30, 2009 were due to
an increase in a shareholders loan in the amount of $9,883. (3 Feb 10K/A)
When FOOL publishes it's multitude of daily articles from POPS, DROPS, dividends, opinions, doom, gloom, roses, blizzards, sunshine, etc many get "attacked" by an equity loyalist, but some get some nice counterpoint of opinions. It stimulates thought and adds to our due diligence, and that's what 90% of the Fools are here for.
Getting back to American Power:
American Power is a typical TMFSmashy find, (now XMFSmashy, he will be missed)...market cap has no correlation to book value. Sometimes in reverse shells or mergers, mis-reported or moving share count, or a few very other rare birds this can be acceptable while the data streams correlate, but usually, especially in a low volume stock that came out of no where, this could be a serious sign of possible pumping before dumping.
In the case of Amerian Power, I can find no data justifying it's $126 Million market cap.
Did form from a reverse shell company that was formed in Nevada in 2007 as Teen Glow Makeup which attempted to sell teen makeup products on Ebay. Feb. 10-Q
American Power ended up with ticker with no data in between. Coal is a beauty product!.
Appears to have closed the original company/shell and used the ticker to open a coal/minerals exploration company.
3 Feb: 10K/A Report, they have gained in cash on hand, but not enough to run operations:
"Our balance sheet as of September 30, 2010, reflects current assets of $545,592. As we had cash in the amount of $520,852 and a working capital deficit in the amount of $73,136 as of September 30, 2010, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. "
This money was from:
8-K reports it is selling a half million dollars in shares for $0.84 and rights for $1.26. Multiple other filings with Black Sands buying shares to fund the company. Bought coal/mineral rights in Montana for $1.95 Million.
Not much else, so rights for $1.95 Million, loan/funding for up to $10 Million (European Investor), over 68 Million shares outstanding, with more to follow, it does not appear to me to equate to a $126 Million market cap. Exploratory, no product in the pipeline or near production. No proof the coal/mineral rights can equate to any revenue.
Three companies are trading assets and shifting things around and plan to begin a drilling program early in 2011. So while the value of thier assets is subjective, they are clearly an exploratory miner with a long road ahead.
Their "promotionals" cite they are in a high grade coal area with proven reserves, (based on a 1979 study done by Exxon-Mobile).
From a Dec 13th Press Release, they are working for the "benefit of Montana, America and our shareholders."
Who can argue with Baseball, Apple Pie, and Chevrolet....well maybe Chevrolet could be dissected from an investment viewpoint.
Questions investors should ask themselves:
1. How much development can you do for $10 Million, and why are the shares unregistered?
2. Why/How can you acquire rights a coal reserve with 172 to 410 Million tons for $1.95 Million dollars? Why didnt' someone else develop or acquire it since Mobils testing three decades ago?
3. How why is a market cap $126 Million on an exploratory company?
4. If an analyst deems the shares worth at least $4.00 each, why aren't they buying them all at $1.50?
5. Why is the share price oscillating 100% every two weeks? If you're an investor here, at what price?
For now, TSIF, The SKY is not Falling Today, unless maybe you're a Teen Makeup company trying to mine Coal, but check back tomorrow.