NightCulture Inc (fka NGHTD)

[Seekingalphacontributor]

If I had the power to make stock prices rise/fall with just one comment on one article with a total of 3,003 page views to date, that would be amazing. It sounds farfetched to me, almost implausible.

However, the quote you took was out of context. It was written in response to one of my followers who wrote:

BigMoneyTime

Couldn't agree more, this is only the beginning of the run, should see .50 by end of summer in my opinion with no problem

I did not give a timeframe for the ".50" price target in the quote you took. I was careful to avoid that. Stock prices that move up too quickly tend to get pulled down by gravity. Here's what I wrote in the article:

A note of caution: If you are a risk-averse investor, I suggest you read no further. The arguments put forth in this essay are for investors that have the stomach to risk 99% of an investment. I make no promises of a guaranteed return. Although I am very bullish, risks are still eminent and investors should beware.

I was very, very careful to highlight all of the risks involved. Here is what I wrote:

Risks

The biggest risk of course is that millennials stop frequenting concerts and festivals. I think this concern is valid and should be continually monitored. What will NGHT do if suddenly EDM becomes unpopular? I have not been convinced sufficiently that NGHT is truly hedged for this. Although i believe they will find other sources of revenue, the management team's skills are based on knowledge of EDM culture, musicians, and promotion.

There is also the risk of further dilution. As NGHT continues to expand, the company may issue new shares to raise capital. The figures thus presented here may have to be significantly adjusted.
The company currently has a $3 million in liabilities. Nevertheless, this has been cut in half since last year. This is still nearly half of their annual revenues. Again, not something to be taken lightly.
There is an inherent bias against 'OTC-Market' Stocks.There is an assumption made by vulture traders that all penny stocks are essentially worthless since they trade over-the-counter. This assumption is surely misguided but history has not proven otherwise. Although short-selling penny-stocks is difficult, it can be done. Penny-stock shorters tend to have more capital in order to meet the margin requirements. As a result, the outcomes are reflexive, thereby creating the perceived reality that Penny-Stocks are worthless. They can manipulate the stock downwards by putting heavy pressure with their short positions. This is a risk that investors must be aware of when they invest in penny-stocks

Low Liquidity + Volatility. I have recommended a price target from $0.14 to $0.64. Penny-stock traders do not tend to 'stick-around' for the long haul. They prefer quick gains and to move on to the next great buy. This can cause unnecessary volatility and large price swings that might be difficult to stomach. Already we have seen in the marijuana industry stocks gain and lose 50% of value within days, even though nothing fundamentally has changed inside the company. For instance, consider Vape Holdings (OTCQB:VAPE), Vapor Group (OTCQB:VPOR), Abattis Bioceuticals (OTCPK:ATTBF), Creative Edge Nutrition (OTCPK:FITX), even my personal favorite Medican Inc (OTCQB:MDCN). These price swings are exponentially compounded by the low-liquidity of penny-stocks. Trading on the OTC-Market can yield great buys but also great losses. Be prepared to lose 50%-99% of your investment when investing in this exchange.

Unable to raise sufficient cash. NGHT used a considerable amount of its earnings to pay off debt. If it cannot raise sufficient funds, it may be unable to continue as a going concern. This would prevent expansion and thus undermine the growth thesis.
Over-expansion. Right now NGHT is lean and mean. It can handle its territory and sell out shows. But as it continues to grow, there is the possibility it will be unable to handle further expansion. The key to its success would be to maintain a proportionate revenue-to-asset growth.
Competition. NGHT faces competition from both large and small players which include Live Nation (NYSE:LYV), AEG, Warehouse Live, Insomniac, Afterdark, Ultra Music Festival, House of Blues, C3 Concerts, Real Music Events, Gritsy and Reverse, in addition to numerous smaller regional companies that operate in our markets.

Stock pumping. Since its inception 2012, NGHT has had 22 paid stock promotions. The last paid stock promotion was in December 12, 2013. The third-party payer for the promotion on behalf of NGHT is listed as IFR Corp. Penny stocks are a haven for pumping. There is reason to suspect that stock pumpers will take the opportunity to pump this stock for their owngain.Pumpers do nothing but kill the value of a company. Paid stock promotion is a big flag in my book and one that should not be taken lightly. This alone might be reason to avoid the stock.


On this last point, I reached out to the company a week ago. I actually decided to cancel publishing the article because of the stock promotion. Mike Long, CEO of NGHT, was very generous with his time. His response was a bit of a headslapper.

Question: "Why would NGHT pay for stock promotion? It's a huge red flag."

Answer: "What do you mean red flag?"

Question: "I don't understand why NGHT would pay for stock promotion when its fundamentals look so strong."

Answer: "Why would marketing our company be negative? We have to promote and market our shows & festivals everyday so our customers know about the events. Marketing has to happen for anyone to find out about anything. There are thousands of public companies out there. I think it has become a negative unfortunately because there have been companies and people that have abused the system. We are extremely busy building our company and we hire investor relations firms to convey corporate information to shareholders and the investment community."

Mike's answer made a lot of sense in context. How does a company as small as NGHT get noticed? Without large brokerage houses covering a stock, it has always been unlikely that investors will be able to find out about companies like NGHT. Especially because it is so small, most analysts would feel it not worth their time to cover the company.

NGHT's story makes you reconsider how investors perceive OTC-market stocks as pump-and-dump schemes. As investors, we just assume that any company engaging in stock promotion is planning to do something illegal. Whereas in most other cases marketing is seen as a positive for creating 'brand awareness,' with 'penny-stocks' there is a pervasive bias that they trade on OTC because they lack real value.

I'll admit that it did not feel very good to find out about the promotion. I have spent a lot of time looking into the company to prepare this article, and I never had thought to look up whether the company had paid for stock promotion.

But when I look at the growth of the company, the valuation strengths, and the commitment to the music, I become a little bit more sympathetic. I do not think the company would be growing annually if it were simply a "pump and dump scheme." I take Mike at his word that engaging stock promoters was not out of malicious intent. Promoting the stock was no different than promoting their "Something Wicked Festival."

As an analyst and as an investor I told Mike that stock promotion leaves a bad taste in the mouth. I asked that he not engage them again as they attract the worst types of investors. Mike responded that sometimes marketing works, "You found us," he said. "No," I responded, "had I'd seen the stock promotion first, I would have never covered the company."

I'm a NGHT investor based on my valuation and growth thesis. In fact, I would argue that the company is currently undervalued because it has engaged in stock promotion. Although stock promotion helps in the short term, it kills value in the long run. I just would prefer that the company not engage stock promoters ever again, especially as it takes away from their already impressive bottom line.

Maybe you should read the article instead of just the comments. Taking quotes out of context distorts the meaning. Risks have been extensively highlighted