Will There Be A Luokung Technology Rerating?

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.


There's a slight puzzle with Luokung

There have been those concerns about Luokung Technology (Nasdaq: LKCO) for some time now and they have, like all concerns will held back the stock price. The little puzzle to face now is that those concerns have been addressed, or at least seem to have been, and yet there is no revival in that stock price.

This leads to further thought. Of course, knowing how the market as a whole is going to treat any individual stock is very difficult. But it certainly seems like there's room for a rerating here.

The Luokung business

The major business within Luokung is location based services. This is all rather the rage at present and so should be sparking interest. It's also obvious enough that China is a large market for such services. This is also the sector of the business which has produced startling revenue gains in this last reporting period:

(From Luokung results announcement)

That's pretty good as a revenue increase over one calendar year. Of course, this is largely driven by the acquisition that was completed in the period.

But this still leaves us with that bit of a puzzle. We've got those substantial revenue gains in a growing sector in a growing market. Why the stasis in the stock price? 

Well, there were past problems

It should be a surprise that past problems might prove a brake on a stock price. The US government for one placed a roadblock in the way here. By casting the net far too wide on who was a "connected" Chinese company there was the threat of a listing cancellation. That's all been worked out now so that risk is gone.

The second is that there wasn't much excitement happening. That changed with the acquisition of sMapgo, the company that upon integration is producing this surge in revenue growth. There's been that desired step-change in the business that is.

Although we should also note that an acquisition can in itself be a drag - everyone wants to wait to see how the integration goes. Those revenue results seem to be showing that "Well" is the answer there. 

The problems that could be seen as drags on the stock performance seem to have been dealt with.

Then the capital structure

There is one last part that could have been seen as a problem. The company did look a little capital light. The deficit in working capital we can ignore, that's not uncommon in a tech business as it gets up off the ground. But:

So, there's been a stock issuance and that provides working capital and also funds to take advantage of any bolt on acquisition possibilities that present themselves.

So, in total?

There were those four different areas or problems that could have been seen as holding back the Luokung stock price. They all seem to have been solved. So, what next? 

What was there that was exciting within the company? That's been solved by the eMapgo purchase. That also deals with the lack of surging revenue growth. That listing problem in the US is now past and the capital situation has been significantly improved. 

A personal view

It's not surprising when known and pointed out problems lead to a holding back of a stock price. But when those problems are publicly solved I do sort of expect there to be a rerating. Because if it was these problems holding back the price then why should the price be held back when the problems are solved? 

A view for investors

I'm not, because I generally don't, recommending this stock either way. My method is to try to identify situations which can then be investigated further so that the individual can make up their own minds. Which is what I'm doing here. There's that puzzle. If the constraints on the stock price have been removed then why isn't the stock price released from those constraints? If further investigation reveals, well, no reason, then perhaps there is no such reason and the rerating can be expected.

Well, why isn't the stock rising now that the known constraints on it are gone? 

Disclosure: None.

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