MyDx Inc (OTCMKTS:MYDX) Is Nearly Clear Of Its Perfect Storm

On September 21, MyDx Inc (OTCMKTS:MYDX) CEO Daniel R. Yazbeck referred to the company's current market capitalization as being in the middle of a "perfect storm" and that this storm was grossly distorting the market. In the two weeks or so since, the company has declined further, and volume has spiked. A 17% gain at the beginning of this week clawed back some of this decline, but we think there's plenty more to come, and that this might be the start of a nice momentum runner heading into the close of the year.We make this statement based on two entirely different angles, both of which point in the same direction.The first, is the above mentioned distortion. Let's break this one down a little, as it seems markets are overlooking its implications right now. Over the last couple of years MyDx used convertible debenture to raise cash. That is, debt that it knew at some point would be converted into common stock. The common stock is dilutive, and that's some of the issue, but only part of the picture. The really important thing here is that the kind of entities that acquire this type of debenture are not looking to hold it for speculative exposure to a microcap's growth. They pay cash for it on issue, then when it converts, they aren’t interested in holding on to the shares to see what happens. They sell straight away, cashing out on their investment low risk.This selling, and dilution, has taken place over the last couple of months, and heated up towards the end of September. There was $500,000 convertible outstanding as of September, 21, the day Yazbeck put out his release. This is likely all converted now, and the shares sold into the open market.So we're at a point now where the debt is fully converted, and the company has a stronger balance sheet as a result, but it's share price has been decimated.Which brings us to our second angle – operations.MyDx has spent the last twelve months pushing its core product, a substance analyzer, with a relatively small sales force. During the second quarter, revenues grew 73% (when compared to the first quarter) to $279,000. Operating expenses shrunk more than 50% year over year to $990,000. MyDx brought its flagship cannabis sensor to market, and is as we speak following this up with a water purification test that slots into its current hardware. Two more tests are just around the corner, gearing up for launch. In the background, the marijuana space is picking up strength once again, and there's some residual benefit to drive momentum rooted in this strength.Cash is admittedly very weak, reported at just $190,000 at June 30. If MyDx is going to ramp up its sales efforts, its going to have to raise cash, and near term. That said, at its current market cap (a little over $640,000, but this is probably higher in real time based on an increased number of shares outstanding) its almost impossible to not see any upside potential.As Yazbeck points out, this capitalization is below what you'd expect from an OTC shell, not a growing company with what look to be very well protected technological assets.So what are we looking for as catalysts to this momentum play?Well, the company is currently undertaking a marketing campaign that will see it dish out free disposable versions of its premium water tester in the Tampa area, as a response to the sink hole that opened up in Mulberry. We think this is a nice black swan response marketing play, and one that should draw some speculative buy volume to the company near term. Beyond that, third quarter financials (this hit press last year on November 23, so we're using that as a guideline) should offer a clearer picture of MyDx's valuation, and in doing so, catalyze an upside correction.Subscribe to our newsletter and we'll bring you more of these uncovered opportunities totally free!Disclosure: We have no position in MYDX and have not been compensated for this article.