By Tom Winnifrith & Lucian Miers | Sunday 13 November 2016
Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Any lingering doubts that may have been harboured by bears of Cloudtag (CTAG) were dispelled last week by its tacit admission that it had misled the market earlier in the year when it boated of a firm $5.2 million sale to be completed this year, which has now turned out to be a phantom as predicted.
Sales this year from the "guarahnteed purchaser" Second Chance will now be a maximimum of £880,000 but a far more likely number is nil. Cloudtag has rai9sed millions of pounds on the back of "guaranteed sales" boasted about in an RNS. That was a lie and that makes this a company that has engaged in fraud.
Perhaps more worrying for investors is the fact that Cloudtag seems to have run out of suckers to buy its stock and resorted to the dreaded death spiral financing to keep going. The “overseas Institutional investor” is of course no such thing.
It is a ruthless bucket shop who will not advance a single penny to the company until it has sold its stock in the market and retained an eye-watering percentage of the proceeds. Its track record was exposed by Waseem Shakoor earlier in the week HERE.
Death spiral financing, or selling one’s stock in the market at ever diminishing prices, is real last resort stuff and usually signals a rapid path to extinction. There are not many hard and fast rules in investing but avoiding companies that use the death spiral is one of them.
Shares in this company will now fall for two reasons. A technical one is that death spiral funding always sees shares collapse. The fundamental one is that this company has engaged in fraud ( lying to investors ahead of a share placement) and, in the end, to misquote our greatest ever Prime Minister, "the problem with frauds is that eventually they run out of other people's money."
Shares in Cloudtag - of which Lucian, but not Tom, is short - remain a sell at 10p-10.25p with an eventual price target of 0p.
This article first appeared in a shorter version on the Nifty Fifty website which Lucian Miers runs with Tom Winnifrith & Steve Moore. To access the website ahead of the next share tips (TWO OUT THIS FRIDAY - 18 Nov) from Tom & Steve and ahead of a new shorting idea from Lucian GO HERE
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