Small caps stocks that constantly dilute are no friend to shareholders.
It was one year ago in our blog post (See: Clean-tech small caps have big vision but no profits) we cautioned growth investors about perception of that big order that has allowed clean-tech small cap companies to raise equity by issuing millions of new shares to fund losses and constantly diluting its existing shareholders.
Fittingly, it's time to glance back at four clean-tech small cap companies we noted in our blog last year to see what has transpired over the past 12 months.
Our findings: Nothing has changed more losses and more debt and equity issued.
Small cap clean-tech companies, Legend Power Systems Inc. (TSXV: LPS $0.04, Basic: 86.9 million shares), MicroPlanet Technology Corp. (TSXV: MP $0.07, Basic 103.6 million shares), Smartcool Systems Inc. (TSXV: SSC $0.03, Basic: 64.2 million shares) and Sustainable Energy Technologies Ltd. (TSXV: STG $0.12, Basic: 20.9 million shares – post 1:10 rollback Dec. 2012) still trade for pennies and have continued in their plight to survive.
The fundamental problem with most clean-tech companies is that management is still dreaming about the global sales potential of its green technologies instead of executing on a business plan to produce profits today to fund future growth.
For existing shareholders of these companies the news is not good. The shares are still worth pennies from the continuous dilution from financings which limit (or eliminate) the return on this investment.
But for small cap investors who still see the upside for these green technologies, our advice is to reduce the risk and wait for three deliverables from these clean-tech stocks before you invest:
- A string of profitable or cash flow-positive quarters generated from sales orders with multiple customers.
- The consolidation (roll back) of the company's outstanding shares.
- The riddance of secured debt obligations and the conversion of convertible debt into equity.
New investors may share the same rosy vision with the existing shareholders of clean-tech small caps but, to realize the upside, wait for these companies to deliver first.
Alternatively, choose to invest in a clean-tech company that is already profitable (See: Questor Technology Inc: A small cap clean-tech company that makes money).
Author's Ownership Disclosure: TSXV: LPS – No, TSXV: MP – No, TSXV: SSC – No, TSXV: STG - No
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This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. |
