What causes a tiny ($2.8 million market cap) oil and gas company stock to surge 62% in one day, out of nowhere? That's a question for Recon Technology, Ltd. (NASDAQ:RCON), which did exactly that yesterday. After spending several weeks stuck in the $0.44 area following a nasty selloff in 2011, RCON shares soared to $0.70 yesterday - the best close since late November - on the highest volume we've seen since last June.
The reason for the rally? Zilch.... at least as far as company news is concerned. The company hasn't posted a press release in weeks, and the media hasn't touched for Recon Technology in quite a while either. Clearly though, somebody knows (ort at least thinks) something.
RCON is a Chinese oil-extraction technology outfit. The company combines hardware and software products designed to enhance the extraction of petroleum. In simpler terms, it offers the modern/smart way to drill for and process oil and gas.
And, business appears to be.... well, existent, albeit erratic.
Recon generated a top line of 4.94 million yen last quarter, 0.94 million yen the quarter before that, 8.76 million yen the quarter before that, but a whopping 21.8 million yen in Q3 of 2010 [we've not yet heard Q4-2011's numbers]. That's (sequentially) $64K, $12K, $113K, and $283K. Yes, the trend seems to be pointed lower, but when taking a step back and looking at Recon Technology, Ltd's long-term history, fiscal 2011's 63 million yen in revenue is roughly the norm - it was fiscal 2010's revenue spike that set the bar exceedingly high.
Just for reference, the $482K (US) in sales it created over the past four quarters translates into a price/sales ratio of 5.8, which isn't good by anybody's standards, but it's not unpalatable either - if the future looks promising enough (or in this case, looks like 2010).
But still, a 62% pop on no news? What gives? Some are suggesting it was a 'buy' opinion on RCON posted at! a websi te called AllChinaStocks.com. However, the site is a mere aggregator, and its ratings are automated with no human thought or opinion. That wasn't the likely culprit.
No, this surge appears to be a case where the planets all seemed to line up in just the right way at the right time, and the hype (and hope) fostered on the message boards simply got traction. It's easy to do when the float is only $2.8 million worth of a stock price at $0.43 per share. The 134,810 shares that traded hands represented about $78,000 worth of buying... a lot for Recon Technology, but only about 3% of the entire company. That's nothing unusual.
The real question is, will the buying pressure that did yesterday's work continue to prod RCON today? The answer is a hesitant yes. The one thing working in favor of the bulls now is the small size - the stock got a lot of attention yesterday, and with a float this low it doesn't take much of a spark to start a big fire. The 'value' may still be up in the air, as there's no clear earnings or revenue outlook for 2012. The stock's found new life in the near-term though, and that may be enough for a short-term rip.
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