Last week Aqua Metals raised about $15 million in a secondary offering. The deal was done at $2.10 per share, and comes about 10 months since they last raised money by selling 5% of the company to Johnson Controls at a price of around $11 per share.
At that time, the Company also inked a strategic partnership with Johnson Controls, which sent the shares of AQMS screaming past $22. In fact, the word on the street was that JCI had tried to buy the whole company. In February, the Company could have raised as much money as it wanted. Oh, how the mighty have fallen…
Here at Tailwinds, we honestly have more than a little egg on our face. Although we have lately been skeptical of the Company’s ability to execute in a timely manner, as well as the veracity of the CEO, we have in the past been very optimistic about AQMS. And, more recently, stuck with the stock in the model portfolio despite our concerns. This persistence on our part is due to a belief that the technology works and the Company will be a disruptive influence in a $22B industry that is relying on decades-old technologies.
Well, the days of excitement around AQMS are clearly over. There had been questions about whether or not they needed more capital; that issue is settled. Instead the questions now center around whether or not the technology will ever work. In the latest press release the Company discussed ramping up operations in Q1. One would be very justified in expecting that their timeline could be pushed again.
Meanwhile, the stock has been getting pummeled on a daily basis by investors giving up, shorts leaning on a winning position, and more than a little bit of tax-loss related selling.
Tailwinds has been getting lots of questions as to where we stand on AQMS at this time. Frankly, a note should have been put out earlier, but this was one to sleep on (over a weekend, no less) and think about. Should we sell? Buy more? Watch and see? It was a very tough question…
We are leaning towards increasing, but just sticking with our position in AQMS…
Here’s the rub. I’ve heard from multiple sources, and seen with my own eyes, that the process works. And, they are funded through the next few quarters at least, which gives them ample runway to make it happen. This is all positive.
However, I’m concerned that there will be more delays. Management at Aqua Metals has continually missed timelines, so that trend is solidly against them.
In addition, and probably most importantly for the stock, there will be continual tax-loss selling throughout the rest of 2017. The deal they just did has already broken price and that will likely be the final straw for long term investors who are looking at a large loss here and big gains elsewhere in this bull market.
Finally, while I’m convinced the process works, I still have doubts about their ability to run it profitably. JCI was at the facility for most of 2017 and they appear to have said “no mas” when it comes to investing in AQMS. This might be because of their own leadership change. Or, it may be due to the investment looking less compelling now than it looked in February.
We remain with AQMS in the Tailwinds Select Portfolio, but really sitting on the sidelines to a large degree. The position has shrunk due to the price decline, to where it is by far the smallest in the Portfolio. And, until we see some traction with them actually producing profitable lead, we don’t see a big reason to increase the position. Maybe after tax-loss selling ends on December 31st, but certainly not today.
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