Is This E-Cig Maker A Buy?

| April 14, 2014 | 0 Comments

LWSP is one of the most heavily hyped penny stocks of the past week.  According to our sources, over $60,000 has been paid to many of the 26 promoters pumping the stock through more than 70 newsletters this month. 

And the campaign worked like a charm at first.

Legacy Platinum Group

As you can see, LWSP shot up from $0.17 at the end of March to a high of $0.33 on April 3rd and again on April 7th.  That’s two opportunities to cash in on a 94% gain in just a week’s time.

But what about those who bought LWSP on the promoters’ recommendation?

If they didn’t sell out near the top, they’re probably feeling some pain right now.  After hitting that high of $0.33, LWSP has dropped 42% to a recent price of $0.17 per share.

However, there are a couple of positive news items for those holding the shares.

First off, the promotion campaign appears to be ongoing… though you never know when it will end.  If the campaign continues next week, it should attract more buyers to the stock and perhaps lift the share price.

Another piece of good news is that LWSP is moving into the electronic cigarette (e-cig) business.  The company has apparently decided to abandon its failing wine and spirits operation.

This is positive news because e-cig penny stocks have been red hot lately.  The rally in these stocks is reminiscent of the “buy first ask questions later” approach we’ve seen with marijuana penny stocks.

But before you get excited and snap up shares of LWSP, you should keep in mind that the company is just entering the business.  Less than a month ago, the company announced an agreement with Wee-Cig International to manufacture and market the company’s e-cigs and vaporizers.

Legacy clearly has a lot of work to do before it will be a viable business.

Just take a look at the company’s most recent quarterly report (September 2013) if you need some perspective. 

At the end of the quarter, Legacy had just $7,383 in cash and $16,267 in total current assets.  However, total current liabilities were more than 13 times larger at $218,075.  And the company had a shareholder deficit of $90,630.

What’s more, the business didn’t generate a penny of revenue during the first nine months of 2013.  And management racked up a net loss of $68,065 over that same time.

In fact, from the company’s inception in February 1999 to September 2013, it has generated just $110,264 in revenue while racking up over $5.5 million in losses!  That’s hardly what I’d call an inspiring track record.

My take on this company…

Management is rolling the dice for an opportunity to cash in on the e-cig “gold rush”.  It certainly sounds like they have a business plan and products to sell.  However, given their track record, I’m not overly enthusiastic about their chances for success.

One reason for this skeptical view is that the e-cig market is highly competitive. 

There are seven e-cig companies that have the first mover advantage over newcomers to the industry.  And it won’t be long until the Big Tobacco companies move in with their new e-cig product lines, marketing muscle, and deep pockets.

What’s more, the FDA is expected to come out with regulations for the e-cig industry later this year. 

Most industry observers believe the regs will ban flavored e-cigs and either ban or severely restrict online sales.  If so, the new rules will have a devastating impact on the small e-cig makers who are depending heavily on flavored e-cigs and internet sales.   

If you really want to play the e-cig trend, I suggest you do some research on Vapor Corp. (OTCQB: VPCO).  In 2013, this e-cig company generated $26 million in revenue and net income of $801,352.  And analysts are projecting strong growth for this year and next.

Profitably Yours,

Robert Morris

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Category: Penny Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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