The Rise and Fall of Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIG)

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Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIG) has come down a long way in recent trading since the highs it commanded earlier this year.

ECIG was one of the most talked about stocks in small caps early last year when the stock spiked just before the 15 for 1 reverse stock split. Since then however ECIG has not done much and continues to drift lower. Like no other stock ECIG was able to capture the minds of small cap investors and still has a mammoth following.

Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIG) is quickly establishing itself as a market leader in the exploding electronic cigarette space. Growth has been nothing short of spectacular with revenues skyrocketing from well under a million several years ago to $80 million this year according to the CEO Brent David Willis.

A little over a year ago ECIG was the darling of small caps; We said at the time ”ECIG is a rock star headed for bigger things; the Company has just reported net sales of $15.4 million for the last quarter up a spectacular 875% from the same period the year before, the stock is surpassing $5 a share and ECIG is planning a $150 million capital raise and up list to the NASDAQ stock exchange.”

Certainly a rosy picture however ECIG sponsored its fast rise through a number of large acquisitions paid for primarily with toxic debt including VIP for $50 Million, FIN for $133 Million and Vapestick for $54 Million.

Management thought they could pay back that debt during the $150 million capital raise but the plan backfired when the electronic cigarettes market took a dip on some new legislation. Ultimately Wells Fargo backed out of the offering and the debt holders took control flooding the market with blocks of newly minted shares. With no limit on price conversions, debt holders began shorting the stock; the lower the price, the more shares they got.

The resulting death spiral was the biggest in recent small cap history and resulted in ECIG hitting its $03 lows in January. The market valuation of ECIG dropped from well over $400 million to just $45 million at $0.15. Many would suggest this is where the opportunity lies as the underling Company is not the same but actually much stronger.

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In September ECIG reported preliminary financial results for the quarter ended June 30, 2015. Summary numbers: Revenues of USD 12.01 million, Net Earnings of USD 42.78 million, and Earnings per Share (EPS) of USD 0.24. Gross margins narrowed from 60.69% to -10.38% compared to the same quarter last year, operating (EBITDA) margins now -39.19% from -142.93%.

Year-on-year change in operating cash flow of 96.99% is about the same as the change in earnings, likely no significant movement in accruals or reserves. Earnings growth from operating margin improvements as well as one-time items. The table below shows the preliminary results and recent trends for key metrics such as revenues and net

On November 14 ECIG announced financial results for the third quarter ended September 30, 2016.

Third Quarter Overview

Third quarter 2016 net sales were $9.7 million, compared to $12.9 million in the third quarter of 2015 and $9.6 million in the second quarter of 2016. Net sales for all periods exclude revenues from global e-commerce that are now in discontinued operations due to the sale of that business.
Gross profit was $5.6 million, compared to $7.3 million in the third quarter of 2015 and $5.0 million in the second quarter of 2016. Gross profit percentage was 57% for the 2016 third quarter, flat compared to the 2015 third quarter despite the impact of the new royalty payment, which began in the first quarter of 2016.

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Currently trading at a $7.22 million market valuation ECIG is getting a second look from Investors now that is looks as if the massive debt conversions that plagued this one are now a thing of the past. ECIG is an exciting opportunity in small caps; the Company is a leader in a rapidly emerging industry, experiencing spectacular revenue growth that currently trades at a fraction of its former $500 million plus valuation. We will be updating on ECIG on a daily basis so make sure you are subscribed to microcapdaily.com so you know what is going on with ECIG.

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Disclosure: we hold no position in ECIG either long or short and we have not been compensated for this article.

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