Profiting from a 30% Drop… Maybe

MagneGas is a renewable energy that recently changed from a research company to a production and growth company. I have been watching for a few months and slowly reacquiring a larger position. This morning I woke up and it was down 30%. This was painful because it was the single largest stock position in that account. So, I quickly searched and found a company document they had filed with the Securities and Exchange Commission. Essentially what had happened was that the company had issued 31 million shares to some investors in exchange for about $4 million. Plus the company gave the option to buy another 31 million shares in the future at a price of about $7 million. When I ran the numbers in the chart below it appeared that the 30% drop was completely irrational.

According to the numbers the deal was a great deal giving the company some needed working capital. In my opinion the value of the company is greater today because of the deal. Therefore, I jumped on the deal and increase my holdings by 700%. As of this moment the price is already more than half way back to the price before the deal. If the company continues to grow its operations I suspect this could be one of my best value purchases to date.

Only time will tell if the company continues to be able to scale and actually become profitable. However, I really like the product and want to see it succeed. Also, with the newer management I believe they have the expertise to grow and become a big player in the industrial gas and other industries. Regardless it is an exciting company with explosive potential.

Check out the safety comparison of their gas vs Acetylene which is the current industrial standard (watch the video starting at the time 0:53). Though MagneGas is renewable, burns hotter, and cuts metal faster compared to Acetylene it is much less dangerous according to the stability test.

Though I currently hold the stock my views could easily change at any time. However, if management continues to make solid decisions like this deal, the sales continue to increase, and they don’t run into some kind of technological set back I see no reason why the stock won’t grow quite dramatically. Then again, I have been wrong before, and there are some huge risks to owning this stock.

 

 

Update 5/11/2019 so far there is no sign of success with this stock. They began issuing many more shares after having said they would not. Despite some good signs such as San Diego making them a major supplier for the city, the company has shown no real signs of turning things around. So far this pick has been nothing more than a lesson in the risks of penny stocks. 

 

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