Even after the stock price declined from $5 and hit 52-weeks low of $1, we remained bullish on JB&ZJMY HLDG CO IN (OTCMKTS:JBZYD). The new information released in February about a merger with a Chinese company and the good prospects of the electric vehicle industry in China were the main reasons behind sustaining our bullish thesis.
With the stock trading at the $2 candle, the price needs to close above the $3 mark to tick higher and achieve the psychological level of $4. Taking into account the momentum of the last 10 days, the upward movement is likely. On the downside, if the price closes below the $2 mark, the market sentiments may weaken and send the price back to $1. As we mentioned in our previous piece, monitor the price at the $1 level. In March, like we said in our previous piece, the price rebounded. However, we don’t know if it will do it twice:
“On the downside, the stock price could go to test the support of $1. Many longs will be waiting at this price to re-enter orders. Thus, it will be another good price to buy the dip. But, be careful; if the support does not resist, the price could collapse.” Source
While downward movements are not expected, nothing can be 100% sure in the microcap space.
Let’s revise what JBZYD does to enhance value for the shareholders. The company focuses on the business of electric cars and their support systems. Currently, JB&ZJMY plans to launch two type of cars to the market; the electric car with a max range of 330 Kms, and an electrical SUV model with a max range of 500 km. Both vehicles will support recharge models and battery swap/change technology.
Let’s first explain the retracement seen on February 15, 2018. The stock price declined from $3.5 to $2 in a few days, as the market reacted to a 100 to 1 reverse split announced on February 15, 2018. While previous shareholders should not appreciate this new measure, in our opinion, it was a necessary move for JBZYD. With the stock trading below $.1, new shareholders were not interested in the stock, because the price was too low. This had an impact on liquidity; the stock volume was less significant, and JBZYD had difficulties to finance itself. In addition, after the reverse split, the company will be able to trade in other more respected exchanges in the near future, which will help the company grow and obtain equity financing. For these two reasons, we believe that it was a right corporate decision.
The following is an image taken from the corporate document:
As a result of the reverse split, the total amount of shares is now equal to 8,469,418 (846,941,800/100). Additionally, please note that holders of class E, C, and D preferred stock are not affected by the reverse split. The following information is important for these holders:
In addition to the reverse split, like it always happens in mergers, the board changed the total amount of shares authorized. JBZYD will be able to issue 2 billion shares more:
What’s our take on this change? The company may be increasing the number of shares for several reasons. First of all, increasing the number of authorized shares opens the door to the issue of new shares. While such a transaction may not be beneficial for previous stockholders, it would represent millions for the company and could facilitate future growth.
What’s creating the recent upward trend in the share price?
While the company has not released any single new information about its new plans after the merger, the market has pushed up the stock. Although it should be the only reason, we believe that a large amount of social media activity is helping the stock. There seems to be a lot of informed individuals speculating about the future plans of JBZYD. There are many posts in iHub that readers should read, but one of the best is this one, wherein many optimistic assumptions are contained about the future of JBZYD.
What’s our take on these bullish articles about the valuation of the stock?
In our opinion, their content is correct regarding the future development of the electric vehicles in China. As we have noted many times here, the Chinese Government is helping companies with subsidies. Thus, with such powerful partner helping, the future is promising for companies like JBZYD.
However, the articles in the social media are claiming that JBZYD will be making billions in revenues soon, which we don’t believe. In our view, the company will grow, but at a slower pace. According to the last balance sheet, JBZYD holds $0.19 million in cash, $3.7 million in total assets, and $0.79 million in total liabilities. The financial position is solid, so the company has a good ground to grow, but that’s not the financial profile of a company making billions in the near future. Of course, the company increased the number of authorized shares, so it may be raising capital soon. Also, it has patents. But, we expect the revenues to increase at a decent rate, not at an exponential rate. The last revenues reported were equal to $0.18 million.
Currently trading with a market cap of $16.9 million, JBZYD is an interesting story among small caps. In our opinion, many market participants are buying shares after the Government of China was said to extend the subsidies for the EV industry. While we could not confirm the information – it is in Chinese -, we could translate it:
To sum up, there are many catalysts on this name. It will remain on our watchlist.
Disclosure: We have no position in JBZYD and have not been compensated for this article.
Image courtesy of Craig Piersma via Flickr.