I watch the list of latest percentage gainers and losers to see what's hot -- and what's not -- on Wall Street. And over the past four days, I've watched China Energy Savings Technology
The company develops, manufacturers, and distributes energy-saving products for use in commercial and industrial settings in China. Despite the stock's recent moves, this business has not set Wall Street on fire, even with 11.4% year-over-year earnings growth and fat 26.1% margins. In fact, the stock has fallen from $28.28 last December to a recent low of $3.90 a share. Yikes.
What instead could have sent this stock skyward was an announcement in mid-September that the company plans to explore new business opportunities and technologies in response to the "world's growing global energy crisis." The company clearly stated that it intends to expand into alternative-energy areas such as fuel cells, solar power, and micro-hydrogen.
But with trailing annual revenue of $39.8 million and total cash of $24.6 million, it is easy to understand why the stock sank from mid-September's $7.00 range to last week's $4.00. With so little capital, how did the company plan to compete with the likes of General Electric
Here is where the story gets interesting. A research report that set a $13.75-per-share 12-month price target didn't lift the stock. Neither did the mid-October announcement that the company was going to distribute Emerson Electric's
No, not even an announcement a week later of a letter of intent covering a proton exchange membrane fuel cell was enough to ignite the stock.
So what exactly happened last Wednesday? There is no press release to explain it. There is no short interest squeeze when only 1% of the float is short. There is just a strong rise in daily volume and an ever higher stock price, with no apparent reason.
Let's just call this the "bottle rocket" effect. If you have ever deployed a bottle rocket on the Fourth of July, you hope it starts out going upward, but you know it can actually go in lots of different directions. But then the fuel runs out, and the projectile falls back to Earth.
The bottom line here is that China Energy is a speculation -- one that, after some passage of time, might leave the remaining shareholders asking, "How is this company going to fund all these alternative-energy initiatives?" For that matter, are any of these alternative-energy initiatives going to be worth anything if energy prices come back down to Earth? I'd say no.
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