Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIG) is a fascinating story that is taking the bb’s by storm and has quickly become the top most traded stock on the entire exchange. The stock is the final stages of a massive tug of war that started when ECIG was $19.99 earlier this year and culminated with the stock hitting an all-time low of $0.05 in recent trading.
The excitement on ECIG is palpable; we are talking about one of the darlings of the bb’s that has quickly established itself as a market leader in the exploding electronic cigarette space and boasts spectacular growth; from well under a million a few years ago ECIG revenues have skyrocketed to $80 million this year according to the CEO Brent David Willis who is projecting $200 million plus for 2015.
It was not long ago that the future for ECIG looked bright. I said at the time ”2 months ago ECIG looked like a rock star headed for bigger things; the Company had 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 was surpassing $5 a share and ECIG was planning a $150 million capital raise and up list to the NASDAQ stock exchange.”
Epic numbers indeed but the problem with this rosy picture is that ECIG sponsored its fast rise through a number of acquisitions paid for with short term debt that had to be converted within the year. Before the conversions started ECIG had $48 million in debt and another $21 million in payables against only $29 million in current assets. Management thought they could pay back that debt during the $150 million capital raise and up list but the plan backfired when the stock price continued to plunge.
The shorts soon took charge and decimated the stock price as note holders flooded the markets with blocks of newly minted shares. The Company was at their mercy because they had been forced to give highly favorable terms in the conversion provision.
This resulted in a classic death spiral as note holders shorted the stock into oblivion while converting the debt into a rapidly increasing percentage of the OS. Their motivation was simple; $10 million dollars in debt gets you a lot more of a Company trading at a $15 million market cap as opposed to a $300 million market cap if that debt is converted based on the price of the stock as the conversion provision provides. The difference is 3% of the Company compared to 40% or more.
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Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIG) is a fast growing Company that is quickly establishing itself as a market leader in the exploding electronic cigarette space through aggressive acquisitions and organic growth of its flagship Victory brand.
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 who is projecting $200 million plus for 2015.
In recent news ECIG said that ”it has signed a memorandum of understanding with TDR, the leading independent tobacco company in South East Europe, including a 60% market share in Croatia. The memorandum of understanding defines the terms for exclusive distribution of ECIG’s brands across TDR’s territories, with a definitive agreement and product launch expected in the first quarter of 2015.
The memorandum of understanding defines the terms for exclusive distribution of ECIG’s brands across TDR’s territories, with a definitive agreement and product launch expected in the first quarter of 2015.
The death spiral conversions took ECIG from the gates of a higher exchange trading at a market valuation of several hundred million and a $5 share price to recent lows of $0.05. But fundamentally nothing has changed; ECIG is the same Company it was at $19.99 a share earlier this year and revenues continue to grow exponentially.
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Many are calling ECIG the most undervalued opportunity to come around in while; indeed the stock is trading at a massive discount and big money is absolutely flowing into the stock. Enormous accumulation rains as buyers chip away at the cd’s currently flooding the market primarily through the mm ARCA. Everyone agrees that with this level of buy interest, once the new shares stop, the market for ECIG could go parabolic real fast.
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Disclosure: we hold no position in ECIG either long or short and we have not been compensated for this article.