MGT Capital Investments Inc. (OTCMKTS:MGTI) appears to have hit rock bottom and is now ready to bottom out. In our previous update, we proclaimed why it was essential to wait for a significantly lower entry point, to consider the stock as a long-term play in the crypto space.
If recent price action activity is anything to go by, then MGT Capital Investments might as well have positioned itself as a perfect trend reversal play.
The stock plummeted from the $2 a share handle from our previous handle to the $1.04 handle. It has since bounced back in what appears to be a reversal in the direction of trade. A bounce back from the $1.04 mark to the $1.32 handle is seen as an exciting entry position as the stock tries to make a comeback.
MGT Capital Investments needs to rise and close above the $1.80 handle, to affirm the emerging uptrend, which would reaffirm talk that a sell-off that began early in the year is losing momentum. Taking into consideration the long-term bear trend, the stock faces immediate support at the $1.04 handle, below which it remains susceptible to further declines.
MGT Capital Investments casts itself as a Cybersecurity firm focused on developing solutions and technologies in partnership with industry pioneer John McAfee. In the recent past, the company has switched attention into the cryptocurrency space in pursuit of growth opportunities.
It is currently rated as among the largest U.S based bitcoin miners. The company has since embarked on an expansion drive as it looks to grow its crypto assets materially.
Why Is MGT Capital Investments Destined To Climb Higher
MGT Capital Investments outlook on Wall Street has received a boost on the announcement of better than expected financial results for FY2017. A reduction in toxic debt all but underscores the company’s positive cash flow prospects.
The company says it generated revenues of $3.1 million compared to $313,000 reported in 2016. The increase was attributed to an impressive year on the bitcoin mining front.
Gross Margin for the full year rose to $1.6 million compared to $104,000 reported the previous year. MGT Capital Investments generated a net loss of (-$50.4) million in 2017 compared to (-$24.5) million published in 2016.
A wider than expected net loss for 2017 was as a result of the company extinguishing its debt as well as incurring non-cash accounting charges relating to stock-based compensation. Cash used for operating activities dropped to $2.4 million from $5.5 million.
MGT Capital Investments ended 2017 with $9.5 million in cash compared to $345,000 as of the end of 2016. Total debt reducing to zero is a testament to the company’s improving financial position.
Cybersecurity Business Divestment
MGT Capital Investment has divested its Cybersecurity operations paving the way for it to focus on the young and lucrative cryptocurrency business. The company has offloaded the Sentinel product line to a new team formed by the management team for $60,000 in cash and $1 million in a promissory note.
Robert Lowrey, newly-appointed Chief Financial Officer of MGT, commented, “Despite some initial market traction with Sentinel, the board has determined to focus resources on cryptocurrency mining and to end the cash burn associated with R&D and marketing in the highly competitive Cybersecurity space.”
Chief Financial Officer Appointment
MGT Capital Investments has appointed Rob S. Lowrey as the Chief Financial Officer. He will also serve as the Treasurer and Secretary. Lowrey joins the company with vast experience that should benefit MGT Capital Investment on financial leadership, corporate governance, and technical accounting.
His experience should benefit MGT Capital Investment as it transitions into a pure crypto play.
“We are fortunate to have someone with Rob’s qualifications and skillset as the Company transforms its operations into free cash generation, and as we remain committed to positioning the Company for its anticipated application for NASDAQ up-listing,” said H. Robert Holmes, Chairman of the Board of Directors of MGT commented.
What Next For MGT Capital Investment In 2018
MGT Capital Investments transition into a pure crypto play is gaining traction. Divestment of Cybersecurity operations should allow the company to focus on the emerging and lucrative cryptocurrency mining business that has proved to have the ability to generate significant value for the company.
A tenfold increase in total revenue in 2017 indicates the company is on the right track as it continues to ramp up its bitcoin mining operations. Stock underperformance does not come as a surprise given that the broader market has been under pressure.
However, sentiments in the crypto space have started to pick up in response to change of heart by high profile institutional investors. Growing investor confidence should have an immediate impact on bitcoin prices, which in return should make MGT Capital Investments operations profitable.
A spike in bitcoin prices, from current lows, is one of the catalysts expected to strengthen investor confidence on MGT Capital Investments. After a recent bounce back in share price, it will not come as a surprise if the stock continues to power high.
Disclosure: We have no position in MGTI and have not been compensated for this article.