Someone asked me my opinion on QP. OK, here goes …
Remember, I don’t have any interest here, so what I say here is talking to my hat offhand speculation.
Let’s look at our checklist for penny dreadfuls and see how many Ticks Of Terror there are:
* startup pharma. check
* no free cashflows. check
* story stock. Obviously
* recently floated. check. Dec 2014, in fact. Actually, the company was only incorporated on October 2014. So it seems to have come out of nowhere. The CEO is 38 years old, which seems suspiciously young.
* on AIM. check.
* too much debt. yep. Looking at Sharelock Holmes for the finals issued on 20 May 2015, there’s profit before tax of 1.1m against net debt of £9m. That’s too risky. Analysts are forecasting PBT of £10.8m for 2015. No doubt there’s going to be equity raised to hit that projection, so you are either damned if they do or damned if they don’t.
Analysts have been downgrading forecasts. The Earnings Manipulation Risk is “high”, according to Stockopedia.
QP announced an acquisition in Jul 2015, which is another red flag as far as I am concerned. Look, if the company had some decent products to sell, why is it making acquisitions?
I could go on, but you get the general idea that I don’t think it is a long candidate. How about short? I think that’s what my original questioner was driving at.
The chart on QP looks terrible. Its RS6m is -21%, which is at the threshold of the bottom decile. I HATE stocks in the bottom decile of RS6m, I think they are very dangerous.
Where might a support level for this stock be? The answer is: I honestly don’t know. We have yet to see enough history to gauge, and it could really be anywhere. But I think we can tackle the question from another angle. I took a look at some recent issues, listed below. You can look at the highs and subsequent lows.
AO made it to 377p, and then went down to 178p. Ratio: 0.47 (=178/377)
AA.: doesn’t count, it’s a £1.6b company
AUTO: doesn’t count, it’s a £4b company
BOO made it to 75p, and then went down to 36p. Ratio: 0.48
CAKE: keeps going up.
DX reached a high of 141p, and dropped to 23.25p. That’s a ratio of low to high of 0.16.
KNOS high 292, low 219 (so far, it’s possibly in downtrend), ratio 0.75
MCS doesn’t count, it’s a £1.2b company
PETS: high 245p, low 169p, ratio 0.68
SOPH: doesn’t count, it s £1.3b company
All figures are approximate and lazily constructed. It does illustrate one thing: you can reasonably expect – although it is hardly a guarantee – that the high price will half.
Applying that principle to QP, it had a high of 172p. So it could potentially go to 86p. It could obviously go a lot lower (which wouldn’t surprise me at all), or even rebound. The share price is 99p. So that’s a potential gain of 13% as a short, and maybe much more. A lot of risk control would be required. QP is really making lower highs and lower lows; a classic bearish sign.
The chart is interesting. See below. There was a great run-up in the share price, with a spike. Notice how the spike was short-lived, and that the share price returned to a previous resistance level. Hindsight is 20/20, of course, but if you were looking at the chart in Aug 2015, you would probably have had fair reason to believe that the top had already been put in. Maybe it would have “done a batman” formation and made it back to the peak. so risk management would be crucial, even there. In the event, it didn’t.
Admittedly, it’s so easy to call the shots after the fact.
PLEASE DON’T TAKE THIS POST TOO SERIOUSLY. I CAN’T SLAP ON ENOUGH CAVEATS HERE. DYOR, BWTFDIK, ETC.