Acquisition News Propels ALJ Regional Holdings, Inc. (OTCMKTS:ALJJ) Skyward
It’s fair to say that ALJ Regional Holdings, Inc. (OTCMKTS:ALJJ) hasn’t been the most heavily traded stock on the OTC Markets. The average trading volume for the last three months comes in at just over 15 thousand shares (the outstanding stock stands at more than 26 million shares according to the latest report) and you can see from the chart on the right that the price movement hasn’t really been spectacular. During the first few hours of Friday’s session, it looked like it will be just another day of not much stock changing hands and very little in terms of price movement. Around noon, however, everything changed.
The ticker suddenly started climbing the charts while investors seemed extraordinarily excited. Four hours later, ALJJ was sitting at $1.04 (26% above its previous value) and the trading volume had hit 444 thousand shares. A spectacular movement, no doubt, but we had to ask ourselves: “What caused it?”.
When it comes to penny stocks, such a rally is, more often than not, triggered either by a paid promotion, or by some exciting news. Fortunately, we can find no active pumps for the ticker at the moment. The surge was actually caused by a press release that hit the wire around 12:40 EDT and it informed us that ALJJ have completed the acquisition of an entity called Faneuil, Inc.
This really is a major piece of news since before the purchase was completed, ALJJ didn’t have any operations. Prior to February 2013, they had another subsidiary called KES Acquisition Company, a steel mini-mill and looking at their older financial report, we can see that they were actually doing rather well. Working capital deficit wasn’t a problem and they even had a net income. In February, however, KES was sold and for the last eight months, ALJJ‘s management team has been looking for new business opportunities.
With Faneuil, they reckon that they’re in a good position to return to their former glory. The new, hard-to-pronounce subsidiary is in the business of providing outsourcing and customer contact services. According to various descriptions around the internet, they are a well-recognized player in the industry and they have quite a lot of contracts already in place. Their website and the press releases that have been uploaded there also sound optimistic, but will the acquisition really have the desired effect on ALJJ‘s stock price?
Well, that remains to be seen. While Faneuil certainly looks like a solid operating entity, we’ve no idea about their financial results and looking at ALJJ‘s latest report is, as you might imagine, pointless since it covers the period ended June 30, which means that it doesn’t include the statement from the new daughter company. The purchase price which comes in at the staggering (for a small cap enterprise) $50 million certainly suggests that they might be onto something, but it can not guarantee that the venture will be profitable in the future.
In many ways, ALJJ‘s situation is quite similar to the ones of CodeSmart Holdings Inc (OTCMKTS:ITEN) and American Community (OTCMKTS:ACYD): the three companies have recently completed merger deals that are supposed to have a profound effect on their balance sheets. The uncertainty around the actual numbers, however, means that a lot of less risk-prone investors are a bit anxious which, in turn, results in a rather unpredictable chart movement. That’s why even though the outlook seems bright, considering the risks is still very important.
