Post Decline, MagneGas Corporation (NASDAQ:MNGA) Might Be A Nice Recovery Play

It has been a while since we last looked at MagneGas Corporation (NASDAQ:MNGA). Back in May, when we published this piece detailing a new production input for the company, MagneGas was trading in around $1.90 a share. During the two months subsequent to this coverage, the company has lost a substantial portion of this valuation and entered this month at $1.20 apiece. Throughout the first few weeks of July, however, fortunes seemed to turn around, and the company recovered a decent portion of its lost strength. By July 20, MagneGas was trading just shy of $1.60 per share and looked set to continue to appreciate throughout the latter half of the month and beyond.Fast forward to this week, however, and things have once again taken a turn for the worse. During the session on Monday, MagneGas took a close to 30% hit and will open on Tuesday at less than a dollar a share. It's only been a few months since management reported the closing of concerns associated with NASDAQ listing requirements, with the said closing coming on the back of a reverse split. That MagneGas is now back below one dollar a share is a realization of the major concerns shareholders that had heading into the just mentioned reverse split and – at a glance – doesn't shine the company in a favorable light.With that said, however, we think there may be room for a recovery on this one.The recent collapse came on the back of a couple of SEC filings detailing what amounts to some pretty substantial dilution for the company by way of a preferred stock issue and some future equity incentive plans. We won't go into the details here, but readers looking to pick up some insight into the underlying share structure on the back of these fresh issues can do so here. What we will say, however, is that they are good for the company, but current shareholders are taking a hit on the proportionate valuation of their respective holdings on the back of the updates.With this noted, then, the latest decline is justified, right?Well, not necessarily. Markets have sold off on this announcement as if the company has just dropped the news this week. In reality, however, we knew exactly what was going to happen as far back as the start of this month and the company shifted a bit to the downside in response to the news then, selling off to around $1.14 during the first week of July. We also knew MagneGas was conducting a preferred offering of $25 million (convertible) back in June.We're not saying these financings are good – they are bad news for shareholders short term. What we are saying, however, is that the latest decline is a knee-jerk response from the portion of the markets that missed the initial announcement and one that is almost certainly an oversell given current operational fundamentals.To add a bit of perspective, and to justify this statement, MagneGas currently trades for a market capitalization of around $6 million. The company generates around $1 million quarterly revenues and while it is not cash-rich right now, the latest issue will bring in up to $8 million (and build on the $25 million raised through preferred issue) and secure the company operationally for at least the next twelve months, if not more.With a recent $435,000 commercialization grant rooted in the company's sterilization technology currently being put to use as part of an effort to bring said technology to market (and, by proxy, improve topline near-term) and a number of other commercialization pushes on the way, there is a good chance MagneGas can grow into the end of 2017 and stage a recovery on the most recent decline.In line with this statement, management noted recently that the company has shifted from a long-term research and development strategy to one that sees it focus on very near term value realization of its lead technologies.Mahoney, company CEO, recently said this in an ABJ interview:

"(MagneGas has)… shifted its focus away from long lead time research and development projects and toward near-term commercial growth opportunities, in order to develop a cash-flow positive business that will ultimately allow it to self-fund its R&D in the future"

For us, if the recent capital raise can be allocated towards realizing this strategy, then while it's a bit of a sentiment hit near term, it's a necessary evil to get things moving going forward.Check out our previous coverage of MNGA here.We will be updating our subscribers as soon as we know more. For the latest updates on MNGA, sign up below!Image courtesy of Andrew Malone via FlickrDisclosure: We have no position in MNGA and have not been compensated for this article.