Worth its Weight in Oil? Beware OB Equities
Location: TSIF's CAPS Blog
AbTech Holdings has a reputation as an equity that is either loved or hated. Unlike some OB stocks "pig piled" here on CAPS, it's not likely a scam, although it's beginnings have many of the characteristics one might find for an OB stock, (reverse merger from a non-profitable owner, intermittent "advertising", minimum owner equity, negative cash flow). It may be a rogue gone good and I am giving it the benefit of the doubt that it is working hard to make it in the "real world". Like many OB stocks, however with a $40 Million market cap, it's well ahead of it's valuation. Providing a "good thing" in a multi-Billion market does not justify a $40 Million market cap at 51x P/S when you have a negative book value, and negative cash flow.
What some "investors"/"speculators" do not understand about OB stocks, including Abtech, is that they are predominantly owner held with a large share count that was derived with NO corresponding owner equity installed. They are typically the size of a 5-20 person new/small business (Abtech cites 21 employees) that gets to the stock market through the OB boards with no oversight. The cost of the filing and listing is sometimes more than the total income of the company.
AbTech Holdings recent award from the third annual World Shale Oil & Gas Summit for it's Smart Sponge resulted in some nice attention such as this article in Forbes.
The Smart Sponge can be used to soak up oil in the fracking process. In addition it's being used in waste drains in some major cities. Waste Management partnered with them to swap out the "sponges". The two markets are $1.2 Billion and $7 Billion. That's not counting possible use in other areas. AbTech offered it's services during the BP oil spill and "according to them", was rejected because their product was "too good" and would decrease time/profits of clean-up crews.
(Waste Management did NOT input new money into Abtech, they merely agreed to offer Abtech products and maintain them for a cut of the proceeds. Low risk).
A miracle product in a much needed field. Additional changes could help make the sponges burnable, especially in the fracking field, resulting in double use.
So how can I be negative about a multi-Billion product? Back to valuation. Read the last paragraph in the Forbes Article. Despite the promise and the contracts, AbTech is bleeding money and is a "going concern". Could that change. Yes, certainly, but at what rate. Could someone buy them out for their "promising technology." Certainly, but at what price?
The founders have very little invested in this company, yet it has a $40 Million market cap. $580K in revenue the first six months, but a loss of $5.4 Million last year. Can they grow revenue? Yes, but not without a corresponding increase in SG&A. So far they've found enough backers to keep the lights on. They have NO money to proceed expanding or to front contracts. IF someone invests in them it will be at the continued dilution of any current outside stockholders and investors will get all the guarantees and most of the rewards.
Do you want to be in on the ground floor? I think that's a risk worth taking with a small portion of my investment, but this is NOT the ground floor when the the 49 Million shares outstanding resulted in little shareholder equity and you're buying in with new money at a negative $0.14 per share value....you're buying their debt.
Ground floor is sharing the pain and gain, not funding a Million dollars worth of annual officers salaries, and a half million in SEC filings on a 14 employee company that got to the OTC boards through a reverse merger with 40 Million Paper shares that had nothing to do with smart sponges.....
There will be people who continue to speculate on Abtech gaining "Billions". Some investors/speculators think that current valuation has no meaning. If you're one of those pony up. You might be right once.....but I doubt it.
A few OB companies can mature, but it's really hard when you're share count is from a reverse merger and not funding.
ABHD was incorporated in the state of Nevada on February 13, 2007 under the name Laural Resources, Inc. On February 10, 2011, ABHD consummated the Merger with AbTech, pursuant to the Merger Agreement. Prior to the Merger, ABHD was a development stage company engaged in the business of acquiring and developing mineral properties, and a public reporting "shell company," as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the Merger, ABHD acquired all of the issued and outstanding common stock of AbTech (through a reverse acquisition transaction) in exchange for the stockholders of AbTech acquiring a 78% ownership interest in ABHD, AbTech became ABHD's majority-owned subsidiary, and ABHD acquired the business and operations of AbTech"