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1ronnie

20,758 Posts.

1963

23/07/18

14:49

Post #: 34520998

Originally posted by 1ronnie ↑

Only just April this year, I cautioned about EDE and I posted the following below:

Column 1 Column 2 Column 3 Column 4 Column 5

1

EDE

2 Date

#Shares in issue (mil)

Price

Mkt Cap(mil)

Price Drop%

3 4/4/17

1260.982

$ 0.300
$ 378.29

4 10/4/18

1379.105

$ 0.076
$ 104.81

-74.7%

5 Date
Annualised Rev(m)

Net Cashflow per qtr

Mcap/Rev

6 4/4/17
$ 1.58
-$ 2.48
240.03

7 10/4/18
$ 1.71
-$ 2.76
61.22

I mentioned EDE a few times in my prior posts and here I want to draw attention to how this stock performed since a year ago.

EDE is a case example I could quote to illustrate that the market can be very unkind if a "potential' stock does not deliver revenues as expected. Those who do not know the company well should know that EDE possesses a unique and world leading carbon nanotube enriched concrete mix technology known as ‘Edencrete’ which makes concrete more durable in construction applications and began deployment in state of Georgia in USA. It has great Value Proposition and a technology one of its kind- no one could argue with that and a year ago, holders were talking ahead about doubling production plans even well ahead before any material sales were made. Everyone assumed that once a state adopted it, it was a no brainer that eventually deployment would be widespread across the US.

Last year at this time, it was trading at 30c and only had an annualised revenue of just over $1.5m and its Mcap/Revenue ratio was sitting at a substantial 240x. When a stock has such a large Mcap/Revenue ratio, it meant that the sp had already imputed in advance future revenues that the market accepted and taken for granted. A year later now, its sp has tanked 75% to just 7.6c after it revealed that its revenue hardly had much traction -annualised revenue was just $1.7m based on its Dec half yearly report. Even at 7.6c, its Mcap/Revenue is still sitting at 61x.

Four takeaways from here
(1) A Mcap/Revenue ratio of 240x was clearly a red flag that its sp has gone way ahead of its progress and is bound to be unsustainable
(2) A company may have a great and unique product like EDE has with great value proposition unmatched technically but that does not guarantee that revenues can be scalable as fast as the market had expected
(3) When EDE strong support were breached technically around 17.5-18c, it was the ‘last straw’ to exit which could have saved long term holders almost half of the eventual losses. The sp is the market’s verdict and you should better heed that
(4) If you are going to wait to give the company more time and see the next quarter 4C or the next half yearly, when the company clearly could not demonstrate progressive traction, be prepared for its sp to be decimated when the revenues don’t materialise.

IMO companies trading in excess of $100m market cap with minimal revenues are in that high risk category especially if its Mcap/Revenue > 50x signifying that in its sp run up, it had already imputed substantial expectation of revenue success that has been taken for granted.

Start up companies with a new product and technology that is impressive in all respects on paper but only at a stage of discovery in its business development can sometimes find it difficult to gain market (and revenue) traction for all sorts of reasons. We have seen that with GSW, EDE despite their impressive technology and value proposition.

So how has it performed since then?

Column 1 Column 2 Column 3 Column 4 Column 5

1 EDE

2 Date #Shares in issue (mil) Price Mkt Cap(mil) Price Drop%

3 4/4/17 1260.982 $ 0.300 $ 378.29

4 10/4/18 1379.105 $ 0.076 $ 104.81 -74.7%

5 23/7/18 1383.587 $ 0.053 $ 73.33 -30.3%

6 Date Annualised Rev(m) Net Cashflow per qtr Mcap/Rev

7 4/4/17 $ 1.58 -$ 2.48 240.03

8 10/4/18 $ 1.71 -$ 2.76 61.22

Well, despite a brief resurgence in early July to a high of 7.2c, it has since dropped another 30% from April 18. Anyone who have held this stock since April 17, would have lost 82% ! And IMO the buck does not stop here as market cap is still fairly high at $73m. You could possibly be better off offloading EDE to jump into CXL which has similar level mcap but with a better global business at a higher revenue level.

This is amongst the 'falling knives' stocks that I cautioned about over several months now. If you have not been following, would be good to review some of my prior posts.

Expand

If the forthcoming 4C to be delivered very shortly don't deliver, watch for more pain in store for "falling knives' stocks - BUD, YOJ, GSW, 9SP, AXP, SAS. They may well emulate EDE's second round slide . Take care!

0 Great analysis

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