What's the opposite of a
? A company with a large
but a tiny or non-existent revenue base. These companies often hold
a great deal of promise to their backers, but can also be a black
hole for investors' dollars if they need to keep raising money just
to stay afloat.
On occasion, these highly speculative plays really pay off, as we
VirnetX Holdings (
. I took a look at this owner of telecom patents in August -- after
its stock had tripled from $2 to $6. [
Read the article here
Around that time, VirnetX told investors that revenue from its
patents would finally start streaming in. These days, shares trade
around $18, up some +900% from the 52-week low. Of course for every
Virnet, there are numerous duds, so a basket approach to
speculative stocks makes the most sense.
With that in mind, I ran a screen for stocks that are valued at
more than $100 million, yet have trailing revenue of less than $1
million. That's a different set of criteria -- yielding a largely
different list of stocks -- than the last group of speculative
stocks I reviewed. [Read: "
The Most Speculative Stocks on the Market
Alternative Energy Holdings (
You have to scratch your head and wonder why this little start up
is worth $200 million. The company is looking to build a nuclear
power plant in Idaho, and recently secured an equity
line of credit
(which means new shares are issued on an as-needed basis) that is
likely to take its market value even higher as more and more shares
are in play). But the hurdles for nuclear power are massive,
despite the fact that nuclear power appears to enjoy bipartisan
support. Trouble is, the Obama administration and the GOP greatly
differ on other energy policy initiatives, so nuclear power
opportunities have become stuck in gridlock.
If and when the nuclear power industry springs back to life here in
the United States, the process of getting the right permits and
then building a plant can take years. Moreover, the upfront costs
of nuclear power plant construction are so high, and prices for
natural gas -- another "clean source of energy" -- are so low, that
the business case for nuclear doesn't look very good right now.
Lastly, how do you even place a value on a business like this?
Presumably, management has built spreadsheets projecting robust
many years down the road. But those forecasts never seem to account
for all of the stumbling blocks along the way.
Augme Technologies (Nasdaq: AUGT)
Some investors think that Augme could become the next explosive
play on wireless telecom patents, as was the case with Virnet noted
earlier. Augme's shares surged from $1 in June to a recent $2.75 on
hopes that the company would prevail in various lawsuits that might
ultimatelyyield robust payouts.
But Augme isn't just a patent play. The company sells a series of
software developer tools that enhances the display and
interactivity of mobile ads that are increasingly being deployed on
smartphones. The company's revenue appears to be starting to build
toward the $1 million per quarter mark, which is admittedly tiny
but at least a sign that customers are starting to sign up.
But caution is warranted. Augme's
is quite weak, and the recent stock surge virtually guarantees an
imminent capital raise. You're likely better off researching this
stock now, and should look to buy only when the company has raised
enough money to carry it through the next 12 months. The fact that
the company already has 58 million shares outstanding tells you
that existing shareholders have already felt the pain of dilution,
many times over.
Cadiz (Nasdaq: CDZI)
If current weather trends continue, parts of the U.S. Southwest may
run out of water in a decade or two. As a solution, little-known
Cadiz has bought up 45,000 acres of land in Southern California,
not far from the Colorado River, that could potentially remain as
an untapped resource. The company is securing agreements with local
utilities to buy water supplies in the event that other aquifers
run dry. Cadiz can also store imported water in its aquifers in
case water utilities look to stockpile million of gallons of water.
Yet it's not clear how this
will come into play, until and unless a water crisis emerges.
Management even said so in the last 10-K: "We do not know the
terms, if any, upon which we may be able to proceed with our water
and other development programs." In the interim, the company would
like to install solar power on its land and presumably secure rent
or other revenue streams. And nearly 10,000 acres of its land is
zoned for agricultural use.
So here's the play. If you see the U.S. Southwest head into another
deep drought, check out this stock. Until then, consider the water
plays my colleague Tim Begany recently wrote about. [Read Tim's
excellent piece by
Single Touch (Nasdaq: SITO)
This company wins the 2010 award for the most inane press release
headline: "Single Touch July Revenue Tops Third QuarterEarnings ."
That's a claim that can be made by virtually every company in the
All kidding aside, this provider of retail-focused instant
messaging services has a pretty intriguing business model. Retail
stores can send out alerts to smartphones in its vicinity that
notifies consumers about in-store specials and reminders when
products or services, such as photos, are available for pick-up. A
wide number of retailers have signed up for the service, although
the company hasn't yet figured out how to translate that into
meaningful sales growth.
Single Touch's $100 million market value tells you that investors
have high hopes for eventual strong sales and profit growth. You
may want to check out the company's upcoming fiscal fourth quarter
release to see if such lofty hopes are justified.
Action to Take -->
Of the companies mentioned here, only Augme and Single Touch look
set to deliver impressively rising sales in the near-term. At this
point, it's tough to tell if they will be the type of true
game-changers my colleague Andy Obermueller, editor of
, likes to talk about (these two stocks are still a bit speculative
-- Andy likes stocks that can deliver huge gains over a long time)
-- but they could still deliver big gains. The other stocks
mentioned here are worth monitoring in anticipation of the day that
their business models take off or their market values shrink to a
more manageable level.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.