Converted Organics, Lesson in Speculating

By: ispeculatornew
Date posted: 05.19.2008 (8:51 pm) | Write a Comment  (2 Comments)

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COIN – Converted Organics (NASDAQ) – (Closing Price – $8.05) 

I wrote an article about the foolish speculating in Converted Organics a couple of months ago and just as I predicted the greed that was driving up the stock price turned to fear and the stock price took a huge dive. However, the stock price rebounded from its lows and held up for a little while but is now starting to sell off again.

The reason for the most recent sell-off is the company issued a dismal earnings report last Friday. Converted Organics reported revenue of 260 thousand and a loss of 2.4 million. That is pretty egregious. Some of the greater fools that are still buying Converted Organic are going to say that this earnings report is better than their last earnings report because the company actually reported some revenue. However, this company was actually a better speculative investment when it had no revenue.

If you do not understand this let me give you a lesson in speculating. When you buy a company such as Converted Organics you are buying the story not the actual stock. The reason Converted Organics made such a big run was because it had a small float and was in a hot sector. It also helped that the company was a “developmental stage” company and had no revenue. This meant that people could justify their purchase of Converted Organics because of the potential of the company.

Now however, the hype has faded away and the brutal financials have to be taken into account. The reality is that Converted Organics is no where near making a profit. On top of that the chart is starting to get pretty ugly. I wouldn’t be surprised to see the stock price of Converted Organics fall all the way back to the $2.50 range in the next several months.

The lesson here is to trade the story and the momentum when it comes to super speculative stocks like Converted Organics. When those to things start to fade away it is time to get out.

Disclaimer: I have no position in COIN.

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2 Comments

  1. Comment by Luckyray — May 19, 2008 @ 11:15 pm

    Just wondering from what facility COIN generated that revenue? Do you know? Is that plant operating at capacity now? Don’t they have a much larger plant about to go into operation at Woodbridge?
    I understand COIN has pre-sold most of it’s total expected ’08 product to MTS in Canada and Corbitt in Florida.Is that true? Can you tell us what the revs would be from those sales?
    Or are you simply not that interested in the compaay and don’t bother with those details?

  2. Comment by admin — May 20, 2008 @ 5:53 pm

    Apparently you didn’t understand my post. Those “details” that you mention have very little effect on how the stock has been trading for the last year. A company that goes from $2.50 to over $16 in a few months and has no revenue isn’t trading on fundamentals. It is trading on hype, speculation, and momentum. You seem to know all about the “details” but you have no idea how to trade the stock. In my last post I mentioned COIN as a potential short opportunity at the very top of its run. That was a great call and it had nothing to do with knowing about some plant in Woodbridge. I could go into a lot more detail about my original call and why I think COIN will go all the way back to $2.50 but I have given you too much insight already. You are lucky I am even giving you this nugget of knowledge but if you are going to invest in stocks like COIN trade the story and not the actual stock.

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