The promoter’s dream, Hydrograph Clean Power (HG.C) was definitely grabbing the attention of investors, promoters, and regulators this past week, as it roared past $2 to $3.75 in a couple of days, up from $0.60 a few weeks back.
The promote was undeniably in full swing over the last month, with cheerleaders of the deal claiming it could be the first trillion dollar penny stock.
That surprising claim came as the company had moved from a $100m market cap to a $500m market cap to nearly a billon dollars in quick time, and realistically was only tossed around because a billion dollar market cap on a pre-revenue company with unproven tech made no sense at all if anyne stopped to think about it.
Folks who play charts and not the underlying value beneath them could talk themselves into saying a billion dollar valuation was just the beginning, but short sellers (and, frankly, vastly in-the-money shareholders looking to lock in profits) saw a glaring target that was ripe for a fall.
When we did our Big Dig on HG a few days ago, when it was hitting $3, we noted the market cap was hard to justify, and that even if the tech was solid – a big if right now, but let’s play along – competitors who were post-commerciability were valued lower while earning decent revs.
Here’s me last Friday:
Some people think any promotion of a public company is inherently evil, that the whole business is made up of scumbags and reprobates, like a Vancouver-based Star Wars cantina. The other side of that are the companies that scoff at promoton, insist that ‘the market will sort it out’, and are later stunned – shocked! – that the market didn’t give two shits.
I remain right down the middle. Promotion is my business, but responsible promotion is where I’ve excelled. The perfect ‘pump’ is a long, slow walk upstairs that builds out a shareholder base as it goes, always remaining liquid enough that folks can exit without a ‘dump’ if they so choose.
To be very upfront about it – that’s not Hydrograph right now. This run is fast, hard, and I’d be shocked if it were sustainable, simply because the returns notched to date are going to be too irresistable for some folks sitting on a fortune to avoid cashing in.
Two trading days later, and the arse fell out.
Interestingly, the stock found support at $1.75 (a 50% drop on the high) for much of the latter part of Tuesday, so someone’s propping this thing up, presumably in the hope it’ll catch a second wind.
Top tip: It won’t. That red drop is a cancer, and no matter how much you try to prop the patient up in the near term, people will see that cancer and get scared.
That said, some folks involved in this deal made FUCKING BANK – enough to boss the market in any other (smaller) deal they want, but as beaten as Hydrograph looks right now, it’s still a $400 million dollar company. And if I’m honest – again, no dog in the fight – that’s $350 million more than the tech and commercial viability, as they stand, really merit.
Will it go higher again?
Sure, maybe, but the cash needed to lift this thing back to the high is considerable, and a lot of what’s been removed from the stock these last two days is from folks who were playing the pump ONLY, not the tech, not the people, not the viability.
The promote was on in a big way, and people played along. What’s left now are the true believers and the chasers who came in late. They might not sell in a hurry, they might even average down, but they’re not loading up. Not after this drop.
And not with this newsflow:
Lessons learned
All of this was predictable – in fact, we predicted it above, but we’re no geniuses for doing so. Any company that ramps from $0.60 to $3.70 inside a month better be the next Google, because that sort of rise is algo-shortseller bait. Sure, you can hang on another day in the hope the algos leave you be, but they never do on a stock running that hard.
If it’s a great company with underlying value, it’ll be back. But if it’s an early stage company with a lot of work to do to prove out its tech and sell it to the world, it just got WAY harder to raise money, especially with a four month hold.
it’s worth noting that HG, from $0.60 to $1.20, was a nice orderly, if fast, stock value rise. That didn’t set off the shorters, nor the regulators. But the last week has been fucking ridiculous, and as much as opening your portfolio every morning to see it has grown 30% is an enticing feeling, it should also set off your internal SELL alarms.
Sure, maybe you would have missed the $3 to $3.70 rise, but you also would have missed the $3.70 to $1.50 drop.
There are shortsellers on Twitter with long threads poking holes in the Hydrograph story and some of what they’ve posted is compelling. Other stuff they’ve posted is unadulterated bullshit (such as lists of big holders and previous deals they’ve held that went to zero, which cherry picks data in obvious ways, but also lists folks who left the shell years ago).
Best advice is to believe nobody who isn’t you, do your own research, and only play on obvious pumps if the folks pumping have the common sense to control their roll and not start talking about $16 per share price targets when the stock is already a 10x.
We all, even the scallywags and scumbags, have a place in the penny stock ecosystem. Shell guys and promoters and deal guys and finders fee whores and brokers who don’t broker anything but financings, and marketers who have 152 CEO.CA user accounts, and retail investors hoping to hit the jackpot, and predatory PP investors, and golf-playing CEOs, and fucked up lenders – even clueless regulators – we all have a productive place on the savannah, hunting, killing, cleaning, eating our fill, and moving on… but if any branch of that system gets too greedy and kills and eats everything it sees, the system breaks down and we all starve going forward.
Hydrograph isn’t novel or new. It’s the same routine that’s fueled the Vancouver stock markets going back to guys humping Maple Ridge oil stocks on street corners. The reason anyone plays at all is there has to be a chance for EVERYONE – including retail – to make money out of it.
So it’d be nice if, just one time, the teams ascending these shares to profit multiples played the long game and left some meat on the bones for the rodents at the end to get a little protein in, so they’ll come back for the next one.
— Chris Parry
FULL DISCLOSURE: Again, just a spectator.
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