Stock Promotions Gone Wild
Even CEOs have started pumping their stocks in TV commercials.
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Rant on: If you watch financial TV you’ve no doubt seen or heard them…
These are the commercials unabashedly touting stocks. They’ve been running, seemingly increasingly for months and months. But recently there’s a new twist: Instead of a male or female announcer extolling the virtues of the company, it’s the CEO.
This was a first for me… or the first time I’ve seen anything remotely like that.
The company, Venu Holding Corp. VENU 0.00%↑, barely trades. Yesterday total volume was 34,000 shares, or a bit less than $340,000. Its claim-to-fame is that it says in its videos that it trades on on the New York Stock Exchange. (In reality, as you can see in the fine print below, it’s not THE NYSE but the NYSE American, which is less stringent and costly and designed for new companies without much of an operating history.)
Odd Disclosure
Originally I wasn’t going to mention the company’s name, which went public a few months ago. But I keep hearing the commercials so curiosity piqued my interest. Then I went to the investor relations section of its website, and saw this…
Never mind the video, which you can watch here. It was the circled part above that caught my attention. To help you avoid squinting, it says…
Access shares on all major trading platforms under symbol VENU, including Robinhood, E*TRADE, Fidelity, and Charles Schwab.
Not only is the company aggressively promoting its stock, but it provides links to the brokerage firms… where you can buy it! How convenient. (All of which, as best I can tell, is is perfectly legal as long as the proper disclosures are made.)
‘Too Small, Too Thin, Too Profitless’
Venu is too small, too thin and too profitless for me to spend more than a moment on. Besides, as one analyst on SeekingAlpha put it…
The company finances the build out using a complex VIE mechanism, in which it consolidates subsidiaries for which its economic interest is very low. This makes understanding its financial statements difficult.
The system is complex and full of risks
The analyst wound up putting it on the “too hard pile,” which itself is a red flag.
Red Flag, Red Flag, Red Flag
That’s on top of the red flag of not just aggressively promoting its stock, but telling investors where to buy it.
This company may go on to greatness, and if it does, it will transcend the typical red flags that fly over any company that pays to promote its stock, including one related party after the other; triple-red flag if the CEO is the pitchman. And, in this case, CEO JW Roth is really good at it! He tells a GREAT story. But a good story and a good stock can be two very different things.
Roth himself is no novice, and I urge you to read his bio in the company’s IPO prospectus and check out the other companies he “was involved in taking public.”
Draw your own conclusions.
Meanwhile, as for the other companies I increasingly see promoted – not surprisingly, most are nano-caps. Other than having looked at the stock charts, to see what the real story is, I have no interest in spending a nanosecond on any of them.
One chart is uglier than the other. Maybe they had a moment in the sun, with the stock popping higher; maybe not.
Private vs. Public
What I can tell you is this: I just spent a few weeks researching private small-cap secondaries. (Fascinating market; as inefficient as any, but I digress…) These are the shares of the companies that in the very least got venture-capital vetting and funding… and then likely private equity funding rather than going public too early.
The rule of thumb is that eight out of 10 VC-funded companies will be losers. Today, winners and losers stay private years longer than was the case a decade or two ago, when the VC firms would flip them via an IPO. Even the losers, if they have some kind of product, would likely be sold… in a private transaction.
My point is: The public companies that resort to stock promotion in all likelihood didn’t even make that cut.
Shooting at Superman
As my friend Mr. Ozarks himself – Bob Howard, an old-time stockbroker who writes the always entertaining, plain-spoken and informative Positive Patterns investing newsletter, puts it…
Going that route is the last gasp of a dying company, the last bullet. Look at these companies cash-positive and they say, “HEY, we spend $500K on an ad campaign, and sell some stock.”
It's like when the guy shoots at Superman and is out of bullets and after a few CLICKS he throws the gun at Superman.
Look hard enough, and I’m sure there are some potential treasures in the garbage.
But to me, having been around as long as I have, it’s all too reminiscent of the penny stock boiler rooms I reported on earlier in my career (almost as if they’ve cut out the middleman) and the bad old days of Chinese reverse mergers, which I started red-flagging nearly 15 years ago. Most of them went from stock market darlings to disappearing.
This Time…
This time will NOT be different. And if it is, maybe a few will one day will wind up with one of my Red Flag Alerts. Because if they were bigger right now, quite a few likely already would have one.
That, of course, is the beauty of these… because they’re so small or so thin, they fall through the cracks of coverage.
Even better, they’re ready made for the new world order.
Rant over.
DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I have no position in this stock.
Feel free to contact me at herb@herbgreenberg.com.