Usell.com Inc (OTCMKTS:USEL) Explodes Thanks to Acquisition News
What do you need to do if you want to turn an appallingly illiquid penny stock into one of the most heavily traded tickers on the OTC? An appearance by the company CEO on a big media outlet might just do the job. If you want real results, however, you will need a major piece of news, preferably about an acquisition. Case in point: Usell.com Inc (OTCMKTS:USEL).
On Monday, USEL announced that Nik Raman, the company CEO, is going to appear on CNBC’s Fast Money and that’s exactly what he did, but unfortunately, investors weren’t particularly interested. In a matter of six and a half hours, they traded just 27,822 shares – exactly 27,822 more than the number logged at the end of Friday’s session. This, it must be said, is hardly a surprise considering the fact that Mr. Raman was asked to talk about Apple Inc, and not his own company.
Yesterday, however, the news was much more substantial. USEL proudly announced that it has completed the acquisition of We Sell Cellular LLC – a smartphone wholesaler with trailing twelve-month revenues of about $61 million and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $2.8 million. The company also announced a line of credit which will provide easier access to additional inventory. An 8-K form hit the wire as well and it told us that at least 9.36 million shares of common stock will be issued in exchange for the interest in the new subsidiary. Is it worth it?
Apparently, many investors reckon that it is. Thanks to them, USEL managed to gain almost 50% and it emerged out of the sub-dollar levels for the first time in just under three months. When the closing bell rang, the stock was sitting at $1.15 per share while the dollar volume was pegged at $164 thousand.
Clearly, plenty of people are quite excited which, in light of the figures quoted in the press release is not really a surprise. The thing is, excessive hype is often the cause for many sleepless nights and broken dreams, especially in Pennyland. So, let’s take a more sober point of view and see what the potential pitfalls could be.
It must be said that even without the new subsidiary on board, USEL is in not too bad a shape. The latest 10-Q, for example, lists the following figures:
- cash: $756 thousand
- current assets: $1.2 million
- current liabilities: $1.1 million
- quarterly revenues: $2.7 million
- quarterly net loss: $535 thousand
The company tweaked its business plan a bit at the beginning of the year and the results are quite profound. The revenues are about 59% up when compared to the sales for the same period of 2014 while the net loss is down by approximately the same factor.
And that really has been USEL‘s biggest problem. The company has been working hard to come up with some interesting figures for investors, but they still seem reluctant to pay any attention. The lack of liquidity has been absolutely atrocious and although yesterday’s press release gave the volumes a boost, there’s no telling when the ticker will fall out of trend and become illiquid again. That’s why, no matter what you think of USEL‘s newest acquisition, you should still consider all the risks carefully.
