Legit Penny Stock Or Pump And Dump?
We receive tons of emails every day from readers with questions about a wide variety of penny stocks. They mainly want to know if a particular penny stock is a good investment or if it’s just another pump and dump scam.
One penny stock that a lot of readers are asking about right now is Rightscorp (OTCQB: RIHT).
Here’s our view on the stock…
Rightscorp is an interesting company that is turning internet piracy into a potentially huge revenue stream. It focuses on protecting copyright holders’ rights to get paid for their content by collecting settlement payments from internet users who illegally download copyrighted material.
How do they do it?
The company uses proprietary technology to identify people who illegally download music, movies, and other media in violation of the owners’ copyrights. The company then offers these copyright infringers an opportunity to settle the owners’ legal claims for just $20 per violation.
Most infringers receive and settle multiple infringement notices. Once Rightscorp receives payment, it then splits the amount 50/50 with the copyright owner, less certain costs.
The company’s settlement offers have proven highly effective in resolving the owners’ claims.
You see, the infringement notice explains that each violation carries a penalty of $150,000 under federal law. And most infringers would rather accept the settlement offer than risk being found liable for hundreds of thousands of dollars in potential damages.
According to Rightscorp, the company has closed over 60,000 cases of copyright infringement for its clients.
And they’ve only just scratched the surface of their potential market. At the end of last year, the company had over 40,000 copyrights active in their system. And it recently received approval to collect on over 1 million additional copyrights.
Rightscorp values its market opportunity at $2.3 billion.
Now, as you can see from the chart below, the stock has taken investors on a rollercoaster ride so far this year.
After starting the year at 75 cents, RIHT dropped to the 60-cent per share level in mid-January. It then reversed course and proceeded to trend higher over the next few months, hitting a high of 97 cents in mid-March.
But that level proved to be the rally’s peak.
Less than two weeks later, RIHT began a plunge that in hindsight rivals Six Flags Great Adventure’s Kingda Ka in terms of speed and depth. Over the next 14 trading days, the stock fell by a whopping 59% to a low of 40 cents per share.
Now, RIHT has recovered a bit off the low, but it’s merely hovering around the 50-cent level as I write. At that price, the shares are down 48% from the mid-March high and have lost a stunning 78% of their value since reaching a 52-week high of $2.25 in July 2013.
No question about it, RIHT has provided investors with a significant amount of volatility in recent months.
One reason for this could be the extensive hype campaign for the stock. Since February, more than 50 promoters have pumped the stock through hundreds of emails to their subscribers. And over $120,000 has been paid to many of them for their services.
As you know, I tend to avoid penny stocks that are being hyped through promotion campaigns. With that said, this company appears to have a legitimate business model, a sound growth strategy, and a large, fast-growing market.
I’d expect RIHT to remain highly volatile as long as it’s being pumped by penny stock promoters. However, if the company can execute its growth strategy, the stock appears to offer solid long-term growth potential.
Profitably Yours,
Robert Morris
Category: Penny Stocks
