Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
 |
QT5 (OTC BB:
QTFV) - Blind Sided By the Great State of Maine |
|
The May
28th Trading Alert on smoking substitute beverage company QT5 has
been derailed by an event completely out of left field. No one could have
seen it coming, and frankly I did not foresee an event of this nature as
a risk factor in my evaluation of the company's potential.
I issued a Trading Alert on QT5
because I believe the company has an elegant solution for a problem which
affects 47 million Americans. States like California and New York have
moved in the direction of forcing smokers out of public places. However,
the craving for nicotine does not go away, forcing smokers in the workplace
and in bars and restaurants to the sidewalks; a major source of frustration
for employers and restaurateurs.
QT5 began distributing NICOWater™,
a
smoking substitution beverage in the Northeast at the end of May.
Subsequently, the company has made two announcements. On May 30th
QT5
announced Brooks Pharmacies would be the first to carry the product throughout
its New England based chain of stores.
Next, in a fairly bold move, on June
3 QT5 announced projections of $27 million in sales and $.08
per share in earnings for fiscal year 2004 (beginning in July).
This indicates the company has a high level of confidence its product will
be accepted by the market. If the company can achieve these projected results,
$1
seems
a reasonable price target for the stock. This gives us plenty of upside
from the maximum published entry level of $.40.
Since publishing the Trading Alert
the stock had been hanging in there between $.30 and $.35, well above the
published Stop Loss, until yesterday, when the stock got pounded.
 |
State
Senator John L. Martin Makes His Voice Heard |
 |
The Friday June 6th edition of the
Bangor Daily News carried an article entitled "Measure targets nicotine-laced
water". According to the article, Sen. John L. Martin, D-Eagle
Lake, introduced legislation calling for a statewide ban on NICOWater™.
Apparently
he had seen an ad for the product in the local newspaper, and somehow believed
the product posed a threat to the general public because it wasn't designed
to help people quit smoking.
To read the article in its entirety,
simply click
here.
Senator Martin, who represents the
six thousand citizens of Eagle Lake, Maine, introduced a bill banning NICOWater™.
Apparently, Senator Martin believes NICOWater™ is a product
sponsored by the tobacco industry to "to keep people hooked on smoking
and tobacco products".
According to the article, a spokesman
for Brooks Pharmacy responded by stating the chain would no longer be offering
the product for sale, which I have been unable to confirm one way or another.
Since the news was from such an obscure
source, it took some time to find its way into the market, and I only learned
of it after reading the message board on QTFV at www.ragingbull.com.
The stock sold off on Monday in typical
knee jerk investor reaction. Volume accelerated during the day, as the
stock dropped through the $.20 barrier, and found a low of $.15. I'm sure
some OTC Journal members stuck with the discipline of a stop loss
and sold, adding to the prolific drop in the stock.
The stock is rebounding nicely today,
trading at the $.23 level mid morning.
|
Conclusion |
|
Naturally, as a result of this bizarre
and unforeseen event, I have to adjust my targets for the stock. However,
this event does not derail my belief there could be money to be made on
this special situation.
It seems to me banning this product
is counterproductive to Maine's objective. If they are trying to get people
to quit smoking, NICOWater™ can help do that even though the product
is not marketed that way. If they are trying to prevent smokers from consuming
carcinogens, and innocent people from being exposed to second hand smoke,
NICOWater™
accomplishes
that objective.
One thing is certain; state senator
John L. Martin knows how to get his name in the paper, and knows how to
grandstand.
On the plus side, this bizarre incident
could spark nationwide coverage of Martin's bill, which would provide enormous
free publicity for the product. Martin's action could end up helping demand,
and QT5's spin doctors should be doing everything they can to make
sure other nationwide media picks up this event.
In light of this event, I don't believe
there is any chance the stock will see $.75 within the previously specified
time frame. In the market you must adjust your targets based on events.
I do believe the market always initially
overreacts to events of this nature. I believe the stock is entitled to
bounce back into the $.30 to $.35 range in the short term.
Longer term, the stock could easily
trade to my initial target of $.75. In order for this to happen, NICOWater™
will
have to show up on the shelves of many more stores than Brooks Pharmacies,
and it will have to sell.
If you believe there will be more
legislative attempts to block the sale of NICOWater™, sell the stock
now or sell it as it rebounds a bit more.
If you believe this is a bizarre
isolated case, the stock is clearly a buy. In the interim watch for news
out of the company which will enlighten us more about this incident. I
believe in a couple of weeks we will look back on this event as a buying
opportunity, but time will tell.
If you live in the Northeast, stop
in your local Brooks Pharmacy and let me know if you see
NICOWater™
on
the shelves.
Charts Provided Courtesy
Of TradePortal.com |
