This pitch has been around the block a few times, about a year ago, but there seems to be a big new push for it now — so I’m taking a second look. It was originally a “soft pitch” in a free article about Tesla last Summer, turning into a full on “Be First in Line” pitch for the company that “stole $16 billion in revenue from Tesla” last September, and now we’re seeing “free” articles that hint at the same stock again, and a repeat of the same “first in line” ad about the company that “beat Tesla.”
The “interview” with company management that is the basis for the ad is still the same, and, indeed, much of the meat of the promo is still the same… so I’m going through and updating this piece but have not started from scratch. Much of what is below was first published on September 26, 2016, though I’ve gone through and updated my thoughts and the numbers as necessary. And the ad still refers to Tesla as a $37 billion company, so it doesn’t look like they’ve done much updating since last year.
The ad is still for Alex Koyfman’s Penny Stock Millionaire from Angel Publishing. The heart of the ad is recounts an interview Koyfman had with the CEO of a company that thinks it has the edge over Tesla’s Powerwall when it comes to distributed energy storage (i.e., batteries).
The newest note, in a “free” Wealth Daily email from Koyfman, starts as follows:
“Last week I wrote to you about a tiny tech company whose line of Powerwall-rivaling domestic energy storage units is now threatening Tesla’s (NASDAQ: TSLA) domination of the home battery market.
“This week, that very same company hit a major milestone in its corporate lifecycle when it announced its very first volume order for these units, to be delivered for the Australian residential market.
“Since last week’s Wealth Daily, shares of this company have appreciated a robust 23%.”
I feel compelled to note that this surge since “last week’s Wealth Daily” of 23% was probably caused by “last week’s Wealth Daily” … and that the stock in question is still, even after that bump up from 19 to 23 cents, trading about 15% below where it was a year ago when Koyfmann started touting the shares. This is a microcap stock, with a market capitalization of less than $40 million (C$50 million) and an average daily trading volume across both the US OTC and Canadian markets of less than $100,000.
Wealth Daily, Angel Publishing’s free publication, has a subscriber list of several hundred thousand people — if just one percent of them sniff out a stock, or search out our solution, or subscribe to the newsletter and get Koyfman’s report, that could easily be more than a thousand people who get intrigued by this little stock. If ten percent of those interested few decide to buy a $5,000 position in the stock, then suddenly that’s five times the average daily trading volume of shares who are interested in buying this illiquid stock… and the price almost can’t help but go up, no matter what caution Koyfmann might share with his readers, or what skeptical thing I might say about the stock.
Of course, when that happens you get the flipside as well — if a microcap stock rises just because of a sudden wave of interested buyers who all come in on the same day, what happens to the stock when there are suddenly 10% as many interested buyers a week later? That’s why you’ll so often see heavily teased or touted stocks rise on newsletter attention, and then fall in the weeks after that when the promoter runs out of new investors to appeal to, or the newsletter stops covering it in their widely distributed “free” letters or teaser ads. You don’t have to have an actual illegal operation like a “pump and dump,” where nefarious e-goons promote a stock and then sell their shares into the sudden buying frenzy… just having a surge of buyers that appears quickly but is not replenished with another surge of new buyers is enough to create a stock chart that looks like a single mountain on an otherwise boring plain, getting the stock eventually back to where it “belongs” in a free and open market.
But I’ve gotten ahead of myself, again. What is the stock? Let’s go through the clues…
Here’s a taste of the ad:
“‘Our batteries are better, without a doubt, but that’s not where our advantage lies,’ he continued. ‘It’s our power control that make the difference. The brains behind the hardware. What Musk doesn’t tell you when he talks about Powerwall is that it’s only a battery. You still need a control system to use it. They don’t build those. A third party does.’
“‘So you build the whole package, then, battery and power control system?’
“‘We do, but we don’t necessarily sell the whole package every time. Our biggest clients make their own batteries and use our power controls to manage them.'”
So part of Koyfman’s spiel is that this makes this little startup more appealing — they don’t just think they have a better product than Tesla’s Powerball, they have clients who use their technology for batteries and power control.
And that’s where it gets specific enough to be certain of a match —
“‘How big are your clients?’
“‘I’m not allowed to disclose the identity of the largest one, but I can say that it’s a major German automotive company’ ….
“… this past March… Daimler AG, owner of the Mercedes-Benz brand, just told Tesla that it would no longer be needing an external source of batteries for its electric car line….
“I listened to him talk as I did a second search, this time using the ticker symbol of the company whose CEO was on the phone.
“Scrolling down the March news, there it was: dated March 11, an announcement of a development contract with a ‘German automotive subsidiary.'”
OK, so “development contract” doesn’t exactly sound like “you’ll make enough money to buy your own Tesla”… but it is a clue. What else do we learn about this little company?
“A tiny company, with shares trading in the $0.20 range, with a market capitalization of less than 0.2% of Tesla…
“… essentially a venture-stage company with fewer than 40 employees, and yet its product was about to become a common feature in some of the most recognizable vehicles on the road….
“Could this company really have $50 million in revenue potential next year — a sum bigger than the firm’s entire current value?
“The CEO told me to expect more news flow in the coming weeks, but what happened the very next day was what sealed the deal for me….
“I received a frantic phone call from one of my business contacts….
“‘They halted trading,’ he said. ‘News is pending, but I can tell you right now that it’s about a financing. A major fund is getting behind them.'”
So there you have it — and yes, I can tell you that Koyfman is still hinting at a little Canadian company called Eguana (EGT on the venture exchange in Canada, EGTYF OTC in the US). It’s got a market cap of about $40 million (C$50 million), and, though it kind of looks like a startup company because of its small size and lack of profitability, they’ve been around for 15 years or so.
They had a decent amount of revenue for several years, culminating in a pretty strong 2015 that closed out with C$6 million in sales, but 2016 was a lousy year on that front. It doesn’t look like it’s a particularly steady business, so I don’t know that it’s on any kind of predictable path, but they have over the past year or two been focusing on the battery control business that they’ve established to some degree.
It’s pretty clear that they need to significantly change the scale of the business in order to have a chance of being profitable, boosting revenue in a fairly dramatic way, since for some reason their costs have been increasing more rapidly than their revenue over the past couple years — but there is a decent story and some possibility of future growth if, like Alex Koyfman, you want to connect the dots and try to imagine what their home and commercial battery storage solutions could turn into… or even speculate about what kind of sales they could get out of their potential supply agreement with that unnamed German auto supplier (Mercedes already sells home battery systems that are functionally similar to the Powerwall, BMW is rumored to be developing a competitive product but has denied the rumors thus far).
And the ad really pushes this German auto company connection, implying that there are huge volume sales right around the corner:
“The company announced that its first commercial power control units had been delivered.
“The recipient: the very same German car company that had just told Tesla and Elon Musk to take a hike.
“The name of the company was still not mentioned due to a confidentiality agreement, but there it was, plain as day. (If you don’t feel like Googling, keep reading/listening and I’ll divulge the name in a few minutes.)
“The press release stated that this first batch would be followed by large-volume deliveries starting in the second half of the year.
“The CEO hadn’t been lying. With news like this making the wires on a regular basis, it wouldn’t be long before the stock took off on organic trading momentum alone.
“Once earnings started to catch up to the headlines, this stock, now on the cusp of $0.30, would soon head for the dollar mark.
“And that would still only be scratching the surface.”
They didn’t “steal $16 billion” from Tesla, of course — they’re not even going to get $16 million in revenue this year as far as I can imagine, let alone that $50 million Koyfmann hinted at. They did hit $6 million in their fiscal year ending in the Fall of 2015, but the Fiscal 2016 total was $700,000 and they are on pace to have revenues of under $1 million again this year (their March quarter is the second quarter of their fiscal year, so for the first two quarters of the current year they’ve booked $450,000 in revenue).
It’s hard to say that they “beat Tesla,” since Tesla’s Powerwall has more in preorders than Eguana has generated in cumulative revenue in 15 years, but perhaps their products are better (in case it’s not obvious, I don’t know).
They announced in their latest quarterly press release that they have an “order book beyond $5 million” in the US, largely in Hawaii, but that’s not entirely comforting — over the past couple years they have had a couple quarters when their cost of goods sold was lower than revenue (meaning they had a positive gross margin), including the past couple quarters, but those quarters were also just the very low revenue quarters… so it appears that so far they’ve been able to sell things for less than it costs to make them only when they sell just a tiny amount of merchandise. Once they ramp up revenue their costs have ballooned (maybe that’s why they’re refocusing the business on a different product, and accepting that huge revenue cut).
That doesn’t mean that dynamic can’t change, just that it’s a worry that catches my mind after browsing through their past few years of financials.
Here’s a final burst of optimism from Koyfman for you:
“Its batteries are so superior to the Powerwall that a single unit, installed in under two hours by just a pair of workers, can do the same work as two Powerwalls — each costing up to $10,000 and requiring a full day and a full team to put into place.
“For larger clients, such as businesses, this company makes a line of commercial batteries.
“And at the heart of each one is the power control system — the best in the industry — which is being installed in Mercedes’ new cars even as you read this.
“Put it all together, and it doesn’t take Warren Buffett to see the opportunities.
“An industry-beating product… superior pricing… unheard-of efficiency… clients already stolen from a competitor that’s more than 500 times larger…
“All trading today at just fractions of a penny on the dollar compared to where it will likely be by the end of 2017.”
I honestly don’t know what to think after browsing back through this company’s progress in recent years — they launched their own AC Battery a year or two ago for local (home or business) energy storage that essentially competes with Powerwall and all the other home battery solutions, and that launch seemed to help them lose one of their major control system customers (Sonnenbatterie, the German energy storage company) over competitive fears… which is presumably why their revenue dropped so sharply in 2016.
They do have other partners, including Itochu and LG Chem, so there might be potential to significantly grow the revenue base, but this is all still very early on and its mostly preliminary orders or small orders from what I can tell… though, as Kofymann notes in his pitch, they did get their “first volume order” in Australia just this week (that was for $3 million, through their partner Itochu… not sure how much of that trickles through to Eguana’s bottom line, or how quickly).
This is, really, all about guessing whether their power control systems or their batteries can be competitive in the global energy storage marketplace… and I don’t know the answer to that, but I’m skeptical. The company has survived for 15 years, mostly starting as a niche supplier, and I haven’t seen a lot of evidence that they can be a large scale manufacturer who works well with the multibillion-dollar titans or takes some of the profit away from those titans — unless, of course, their technology really is unique and far better than the existing power control systems providers… which seems a stretch to me but is, of course, possible.
Beyond that, well, I don’t really know anything about the company or the relative merits of their technology — all I can tell you is that Alex Koyfman is teasing the company again, as he has been doing off and on for a year or so, it’s really small, and the company says lots of optimistic things about order books and potential but doesn’t have much in the way of revenue in the past couple years of their turnaround/re-strategizing to serve as the basis for any cold-hearted financial evaluation. It is a small company in a sector dominated by giants, and as a small industrial company they are at a huge scale disadvantage when it comes to manufacturing and operating costs, but a better mousetrap can sometimes make its way through.
Oh, and they’re close to being out of money… so unless some of the orders they’re talking about are going to generate substantial positive cash flow during this quarter, then they will very likely need to raise money within the next month or two (they had $1.5 million in cash as of the end of March, and they have recently been burning through roughly $1 million in cash each quarter)… so even if you find the company appealing and think they do have that “better mousetrap” (or better battery management system), there’s probably not much reason to rush into the shares.
If you’ve got thoughts to share on Eguana, or have been following them since we first uncovered this tease last year, please share with a comment below. We’ve left the comments appended from earlier versions of this article that were published last year, for your information. Thanks for reading!
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