That's the central question for any stock isn't it? Is it under or overvalued. It doesn't matter whether its an OTC stock trading for a single penny, or a NYSE listed company trading for $100 or more.
If you get it right you can make money, get it wrong and you lose. And you can make money both ways. If you think a stock is under priced you can go long, or if you think the price is too high you can borrow shares and dump them back into the market going short.
I've written many times on this blog that trying to assign a value to a speculative stock is pretty much a mug's game. There are stocks out there right now that have been around 20 years or more that have histories of nothing but failure, but their market caps are in the hundreds of millions, sometimes billions. How can that be? Simple, there are more people buying than there are selling.
Stocks don't trade on fundamentals, they trade on sentiment.
Emblem is now trading around $4.20 CDN or $3.20 USD. That is the result of the levels of buy side interest and sell side supply to date. Determining whether or not the PPS will rise or fall going forward will depend on how many buyers and sellers there are in the days, weeks and months ahead.
I very much like the chances for Emblem to increase in value from current levels, however as a shareholder in the company my opinions should be considered as extremely biased. Of course I will explain my reasons for being bullish.
Emblem stormed onto the market with trading starting on December 12th 2016. Activity that first day was robust to say the least, with over 7.3 million shares trading hands on the TSX venture exchange. While market commentators had anticipated an opening PPS of around $1.50 to $2.00 CDN the stock opened at $2.99, double the low end projection. The PPS closed at $3.30 that first day, and traded as high as $3.98. There was no trading on the US side as the OTC listing didn't come until later.
Why was there so much interest in Emblem?
It goes almost without saying that Cannabis stocks have been on fire. But beyond the overall spotlight in the wider marijuana sector, Emblem had already attracted a lot of attention even before being a public company. There were write ups in Canada's national newspaper The Globe and Mail, Huffington Post did a piece, even the BBC had an article about Emblem.
If you missed it here's a sampling of some of those early articles.
That's a lot of attention before even one share had traded hands in the public markets. I myself was alerted to Emblem's IPO by a newsletter service from a promotional outfit called Microcapresearch.
No wonder demand and volume were so high on day one. I had set aside funds specifically for EMC, but seeing it open around double the price I was expecting I decided to only invest one third of the money I'd earmarked. I saw the potential for it to go either way, up or down. I wanted a position if it kept climbing, but I also wanted some money available if the price moved lower.
As it turned out the PPS moved markedly lower. Over the first four days of trading on the Venture Exchange short sellers borrowed almost half a million shares and dumped them back into the market. That kind of activity is bound to have a negative impact on the price, and it did. By the 19th of December the PPS got as low as $2.52 and I was able to add to my position at $2.80 and lower my cost average substantially.
So now the PPS sits over $4 Canadian and the trading has cooled off significantly. After that first day with over 7.3 million trading the volumes have only topped one million three times. The last time volume crested the million mark on the Canadian side was on the first day of trading in 2017, January 3rd when a little over 1.1 million shares were bought and sold. On the U.S. OTC side volumes are even lighter, there hasn't even been a day of 100K trading in calendar 2017 for EMMBF.
Short sellers took their foot off the gas pedal it seems. After borrowing and dumping 483,200 shares in the first four days of trading up to December 15th 2016, the number actually dropped to 456,000 up to December 31st 2016. During the first four days of trading the PPS never once dipped below $3 so I think its reasonable to expect that there are some angry bears out there right now.
Short sellers are not stupid, but that doesn't mean they're always right either. Seeing short selling cool off is a positive sign in my opinion. If bears had continued raiding the stock and dumping shares it obviously would have impacted the price by making more shares available for sale. I strongly suspect that there are a lot of eyes on Emblem right now, with many thinking (or hoping) that the PPS will give back some and allow them to buy in cheaper.
Going forward I see the potential for Emblem to attract even more attention. I haven't seen any promotional outfits hyping the company since that first email I received from Microcapresearch. But with so much free publicity I don't think the company needs to be doing much to attract attention.
Reddit users may already be aware of a Cannabis Conference coming up at the end of January in British Columbia. Here's a link to the post on that site:
EMC has been able to sustain a price of $4+ CDN on much lighter volume than was experienced when trading first started. With the above noted conference, in which Emblem's Stewart is named as a keynote speaker, and with Canada due to outline the path forward to the legalization of recreational weed in April I see the potential for this level of demand to at least be sustained with a distinct possibility of it even increasing.
The one caveat I will toss out there is the possibility of a bear raid. Short sellers could attack Emblem, borrowing more shares and dumping them into the market as they did during the first four days. It is this possibility that has kept me from investing the final 3rd of the money I'd set aside for Emblem. If I sense a bear attack aimed at taking the price down I fully intend to take advantage the same way I did with my second buy.
Good luck all....please read the disclaimer at the very bottom of this site and feel free to comment, just no profanity please.
Here's another article, http://www.geckoresearch.com/content/14127
ReplyDeletethanks for all you do to cut through the noise. any thoughts on aurora cannabis?
ReplyDeleteThanks anon....I'll give Aurora a look. As for me cutting through the noise, there are likely at least some who think I add to it.
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