When you talk about micro-cap stocks, you’re talking about very small public companies. By definition, a micro-cap stock is a company with a market capitalization less than $300 million (although some break it down further to define stocks under $50 million as nano-cap). Companies this small typically mean one thing: they are startups that have yet to prove themselves.
It’s normal for a new company in the first year of operations to have lots of expenses before they have any sales. But I don’t invest like I’m in Las Vegas — if I’m going to risk my hard-earned money, I first need to see indications that the company is headed in the right direction. In other words, there should be at least 2 years of sales data to determine the sales growth rate. That’s critical, because it will have a huge impact on how fast the stock price will climb in the future.
The following stocks look like chickens trying to fly – they’re flapping their wings but they’re not able to get off the ground. It’s possible they could eventually soar like eagles, but until there is more evidence of that, you may be better off avoid these micro-cap turkeys.
Hemp Naturals, Inc. (OTC Pink: HPMM) is one of dozens of new entries in the new medical cannabis industry. Founded in 2015 and located just north of Miami in Sunny Isles Beach, Florida, Hemp Naturals researches new cannabis products. According to Yahoo Finance, their main product is rolling paper (to roll a joint?) which they sell at liquor stores, retail outlets, and gas stations. According to recent company press releases, Hemp Naturals says they also sell CBD gummies and hand sanitizer.
According to Yahoo Finance, the company has been in business for 5 years and has spent over $50 million, but the company has yet to sell…. anything. Zero sales. Their web site does not have an investor relations page, so that is the only information available. The stock went IPO in October 2017 at $0.20, but now it’s at 1.5 cents per share, down over 90%. Not much to see here, move along.
Salt Lake Potash, Ltd.
Potash is potassium-rich salt that is mined and used almost exclusively as fertilizer. Australia-based Salt Lake Potash, Ltd. (OTC Pink: WHELF) (ASX: SO4) explores and develops potash sites in western Australia. They own nine potash lakes covering about 3,3000 square kilometers. The market cap is currently around $88 million.
Although potash prices got a nice bump up in 2019, the long-term trend for potash is all down – prices have been falling for years. Potash is down about 50% from the high in 2012. Sales have been tremendously volatile in recent years along with the stock price. The company has not made a profit in at least three years. It is unknown if the recent bump in other commodities (like gold and silver) will have any lasting effect on potash prices. For now, this is a good stock to avoid.
At Home Group
At Home Group, Inc. (NYSE: HOME) is not a startup; they’ve been in business since 1979. Based in Plano, TX, the company operates stores that sells a wide variety of items the home. They sell furniture, bedding, and rugs, in addition to garden and items for outdoor décor. They have over 200 stores all over the United States. I’m surprised that a company that has been around for over 40 years with a major presence across the country and only has a market cap of $150 million. That seems very low.
At Home appears to be a victim of President Trump’s trade war. The company was caught with higher imported inventory costs. Then, when they tried to pass on those costs to customers, they revolted. And the economic shockwave from the pandemic isn’t helping any.
What had been steadily growing profits hitting over $48 million in fiscal 2018 turned negative in the third quarter 2019 when they lost $14.6 million. Losses skyrocketed in the fourth quarter to $214 million. The stock price reflects this, falling from a high of $40 in July 2018 to its current price of $2.34. They can’t bleed cash at that rate for long and expect to stay in business.
I wish the best for these and all companies suffering from the massive economic downturn we are in. But now does not appear to be the right time to buy stock in any of these micro-cap companies.
Disclosure: The author, Gregg Killpack, Matt Rego and Spotlight Growth do not have any position or relationship with any companies mentioned in this article. This article should not be taken as a solicitation or recommendation to buy or sell any securities. Please conduct your own research and consult your financial advisor to determine your risk tolerance and investment path. We are not licensed brokers or investment advisors.
Article By: Gregg Killpack