Remember eOn Communications Corp. (EONC) pretending they had 50%+ revenue growth when if you take out the acquisition which earns $1.5 million/year and which they’re paying $2 million/year for, the growth was actually -8%?
Today, we found another penny stock playing press release games.:
Understand it’s technically not illegal to be so dishonest (just unethical), but PR was never the most honest industry to start with so I don’t blame these carcass companies fro taking advantage of suckers and the naive financial media.
RELM Wireless Corporation (RWC) spiked 100%+ from $2.50 to $5.75 in 1 day on news that:
…it has been named as a contractor under a contract issued by the U.S. Internal Revenue Service (IRS). The contract is for the procurement of P25 digital two-way radios and related equipment by a broad range of federal government agencies such as the departments of Justice, Treasury, Commerce, Education, Transportation, Veterans’ Affairs, and numerous others. The maximum total value of the contract is $750 million and spans up to five years commencing on November 30, 2009. The contract includes a select group of companies, including RELM, that meet established criteria. The contract does not specify purchase dates or quantities of equipment from any particular supplier.
Wow, sounds exciting right? $750 million over 5 years for just a $50 million company!
And despite announcing a smaller deal for $750,000 today, the stock has faded a bit:
Hmmmm, how can anybody be selling into such incredible news? Well, it turns out Relm isn’t the only company named in this $750 million mega deal, EF Johnson Technologies, Inc. (EFJI) also announced they won the deal and their stock only jumped 25% on their news.
And of course the manipulation part of the news comes into play when we take a look at what Relm’s only analyst covering the company says (I’ll spare you all the text, he says the deal could be nice, but it generates ZERO revenues…but I couldn’t help but bold some text below too)):
Speculation Surges on IRS Contract Vehicle Award
Analyst: Mark Jordan, CFA
Valuation: Despite low earnings visibility, we have shifted to an earnings based
valuation given the recent order flow for the company’s new KNG and legacy
digital radio products. Based on our estimate for 2010 diluted EPS of $0.25,
shares trade in the range of 11X to 12X forward earnings, which is in line with
large defense contractors.
Risks to shares of RELM include: significant long-term growth must be achieved
within the State and Local market which the company currently has limited
marketing capabilities; technology risk; lack of predictability into the timing and or
receipt of larger orders; and aggressive competition from multiple competitors.
Recommendation/Action: Hold; while a plus, the contract award alone does not
generate any revenue
mjordan@nobleresearch.com | (314) 687-1074
ID: 1260300585
Company received a notification that it was included in a large multi-
vendor ID/IQ (indefinite delivery/indefinite quantity) contract with a
potential 5-year term and $700 million ceiling
Contract includes both the Justice Department (DOJ) and multiple
other federal agencies; most likely includes major P25 radio
manufacturers like Motorola Inc. (MOT), Harris, and EF Johnson
Historically, DOJ’s (which includes the IRS) radio modernization has
been performed under the IWN (Integrated Wireless Network)
program headed by General Dynamics Corp. (GD)
While most of the DOJ’s P25 radio modernization should be
performed under IWN, General Dynamics is not a P25 radio
manufacturer
This new award allows the company to market more efficiently to
these agencies, although the company could previously sell to them
under its existing GSA contract
The contract does not guarantee any sales and we are not changing any
estimates for 2009 and 2010
That’s why I’m short this stock, just the latest in a long line of manipulative penny stock press releases. May God have mercy on these peoples’ souls for they have done wrong. As did the SCAMEX market makers who tape painted this stock to close at $ even though the bid/ask were $3.90/$3.92 (learn more about this in my upcoming Learn Level 2 DVD package)
it’s still up 70% on a minor positive development and my guess is it will fade just like EONC did, Fibonacci levels, which often work great in situations like this, say this stock is headed lower to at least $3.50ish, but only TIMalert subscribers will know more about what I expect to happen in the coming days…
Disclosure: As TIMalert subscribers knew within seconds of my execution, I am short 15,000 shares RWC at $3.89 average price
Posted in Manipulation, Short Selling