Capital Group Holdings Inc (OTC:CGHC) With a Smashing Performance
Yesterday, a few minutes after the trading session started, Research OTC, Damn Good Penny Picks, Penny Stock Locks as well as a few other newsletters sent us emails about Capital Group Holdings Inc (OTC:CGHC) and their alerts made for quite an interesting read. The thing that surprised us the most was the fact that the pumpers use phrases like “long-term” and “mid-term” and we thought that those were completely absent from their vocabulary. In the interest of fairness, however, we should point out that they claimed CGHC can make a 100%+ run and they turned out to be correct for a change – 140% in a single trading session. Still, we’re not so sure about one or two things.
For example, some of the emails say that CGHC have a “magnificent financial statement” and we’re not exactly sure what they’re on about. We checked their filings and while the amount of current assets and revenues is definitely something that you rarely get to see in Pennyland, things are not looking too bright overall. Here are the most important figures as of December 31, 2012:
- cash: $605 thousand
- current assets: $1.6 million
- current liabilities: $2.9 million
- quarterly revenue: $1.7 million
- quarterly net loss: $695 thousand
While the losses and the working capital deficit are something that we’re used to, we must say that we’re quite impressed with the revenues that they managed to raise during the fourth calendar quarter of 2012 especially considering the fact that until about 7 month ago they had absolutely no operations or sales.
Back then, on September 3, 2012, they entered into an agreement to acquire some urgent care clinics located in Arizona and, by the looks of things, this decision could turn out to be a good one. There is one thing that still bothers us, however and it’s quite obvious – the substantial net loss. If the news are to be believed, they are battling the negative cash flow and they are quite convinced that a service, currently in the pipeline, will finally set things straight.
They are planning on launching a subscription-based service that will enable you to call a doctor 24 hours a day, 7 days a week and consult with them in case you have some health complaints. Truth be told, this doesn’t sound that bad – it could save you quite a lot of time in case you need to ask just a few question or you simply need to make sure which is the best painkiller for your headache. Still, CGHC are not able to give us an exact launch date and there are no guarantees that the service will be as profitable as they hope. In any case, if they really want to turn their shares into a truly viable long-term investment, they will need to make sure that all their sources of revenue generate a positive cash flow. As the saying goes, those liabilities are not going satisfy themselves.
Speaking of which, CGHC recently borrowed some money for operating purposes and issued a convertible note for $78,500. That’s not that much of a worry and it does happen every day in Pennyland. What is a cause for concern, however, is the note holder – Asher Enterprises. We have seen their name in numerous financial statements and we see that whenever they provide financial help to small cap companies, the terms of the notes are quite favorable for Asher, both in terms of interest rates and conversion options. This time is no exception – CGHC have already set aside a total of 18 million shares for issuance in case they are not able to pay off the note. Which, as you might have guessed, could cause massive dilution for the shareholders and it could also present a huge profit opportunity for Asher.
We reckon that this is something that you should definitely keep in mind in case you are considering CGHC as a long-term investment. And in case you just want to take advantage of the current pump and hop in for a day trade and a quick profit, you should also bear in mind that the upward trend from yesterday might not continue endlessly. To give you an example of how badly things could go wrong with penny stocks, we dug out the chart for Creative Edge Nutrition Inc (PINK:FITXD) who after being pumped by numerous newsletters (including Research OTC) on March 26, scored an impressive 190% run but on the next day they crumbled and lost 44% in a single session. Now, a month later, they are very close to their pre-pump value of $0.006. This is why, you should always consider the inherent risks of promoted small cap companies. And there’s quite a lot of them.
