Stud – Pharmchem Inc (OTC:PCHM)
In May of 2013, we began coverage on Pharmchem Inc (OTC:PCHM) because of a shareholder letter from the CEO that detailed the direction of the company. PharmChem invented the “Sweat Patch” that monitors the level of specific types of narcotics in a person’s body. Most of the company’s revenues are generated when local courts prescribe the Sweat Patch as a means to monitor certain drug levels of people while they’re on probation or parole.
PCHM was a left for dead microcap that went from around $10 to mere pennies when their urine testing product business had to be shut down when their main customer went bankrupt.
The CEO resurrected the company by starting to market its under-marketed Sweat Patch product. Since then, as of December 2020, the company has;
- Grown revenue from $2.52 million in 2014 to $6.67 million.
- Grown net income from $433,995 in 2014 to $1.9 million.
- Paid $0.50 in total dividends since 2017
You could have received your entire initial cost of an investment in PCHM in the form of dividends if you purchased stock when we highlighted it for members on December 2, 2016.
The stock has responded well and at $4.70 has risen 6,600% since our initial coverage in 2013 and stands a current increase of 1,075% since we announced a position in the stock in December 2016. (See chart above)
This is evidence that proves once again that not all microcaps are microCraps.
Despite being on the verge of shutting down many years ago, PCHM’s Sweat Patch proved to be very successful, and helped resurrect the business. In the future, now under the direction of a new Board, the company is looking to increase the Sweat Patch’s market reach by both innovation and the expansion of the test to include the detection of different drugs. At the same time, the new Board aims to unlock substantial value for PharmChem shareholders. For example, the board just approved
Dud – A Turn-Around Story Stopped In Its Tracks Due to Covid-19
We are still betting that this dud can turn into a stud. Companies spearheading turnaround efforts in the midst of COVID-19 unfortunately had two things to prove. First, that they could successfully navigate multiple unknowns that we are all keenly aware of today (Supply chain disruptions, cost of materials increases, etc). Secondly, with all things remaining the same – that they would have been able to effectively restructure in the first place, even if things didn’t go exactly as planned. This held true for a communications infrastructure services and equipment provider we’ve been following since late 2019. The company operates two divisions. Their wireless segment supplies the labor to help telecom carriers like At&t Inc. (NYSE:T) and T-mobile Us, Inc. (NASDAQ:TMUS) modernize their tower infrastructure, including 5G. Their telecom division sells used/refurbished network and communication equipment to telecom carriers and businesses.
While other technology companies experienced meteoric boons at the height of COVID, this one languished in comparison as 5G buildouts came to a halt. We did, however, still enjoy a peak return of 252.71% following the initiation of our position in September 2019, before the markets were rocked by COVID. We currently stand at about break even.
Although the stock tried to make a few recoveries after the March 2020 “COVID Lows”, the pressure on it has proven to be a little too much to bear, and now we have to acknowledge what’s changed under the hood.
Currently, this company is suffering recurring losses and is in violation of debt covenants.
On a high note, we still believe this company can execute its turnaround. It has mentioned that it is slated to reach profitability by Q1 2022 as 5G build-outs by telecom companies are back in full force. Furthermore, because the company’s telecom division sells used equipment, it is benefittng from supply chain bottlenecks that are all over the news, which make it more difficult for its customers to purchase new equipment.