blackwireequity.blogspot.com/2010/10/over-course-of-last-two-years.html
Wednesday, October 27, 2010
Renewal Fuels (RNWF) Detailed Research Report
Over the course of the last two years shareholders in Renewal Fuels (ticker symbol: RNWF on the Pink Sheets) have endured a volatile ride, with tremendous swings on rumors of reverse mergers coupled with SEC filings and heavy shorting. Within the last six months, the stock hit a high of .0065 with tremendous volume – much higher than the alleged float. Since then, though, the stock – and the associated chatter of Internet message boards – has been quiet. Now, however, the technicals are showing the stock looked ripe and a definitive explanation has arisen for the float. As will be detailed, all signs point to tremendous upside for this Renewal Fuels, which has jumped rapidly in the past with minimal volume. Below is why we believe RNWF is a screaming buy at these levels.
First and foremost, RNWF should trade at a minimum of 0.001, the par value of the common shares. Anything under this point is a steal. Arguably, this is the most "risk-free" stock one could find in penny land. While the company is not fully reporting, it is not bankrupt by any means and therefore is legally bound by this par value. This point also explains why Renewal Fuels would be dis-incentivized from diluting; new shares (especially at this level) would create an unwanted burden. We will address the share count in a moment. Now, on to the reasons RNWF has incredible potential:
1. Market cap. Simply on this basis alone, Renewal Fuels is deeply undervalued. While the explanation for a higher tradable float is beneath (we believe the float is approximately 75,000,000), a chart of market cap scenarios is below:
2. Explanation of Unusual Volume. For months, speculators have tried to determine the imbalance between volume, price action, and the alleged float. Many wondered why the company would dilute, with few incentives to actually do so. A simple explanation is at hand: convertible shares. Careful reading of old financial statements, including the last 10-Q filed in 2008, show Renewal Fuels saddled with debt. A portion of debt was settled with current assets from the company while the future revenues from the “FuelMeister” system (which was out-licensed but not sold) helped cover most of the other debt. However, the small remaining portions of liabilities were allowed to be converted into shares of stock with excise prices at or above .0001. If any “dilution” has occurred, it has been through this process. However, with the steady revenues coming from FuelMeister sales, it appears that in addition to the float being manageable, the liabilities are all but settled. This point is key for shareholders: suddenly, liabilities have decreased tremendously, while Renewal Fuels still has retention of the intellectual property that it out-licensed.
3. Intellectual Property. The technology in question has been profitable (and remains profitable). 9-month sales in 2008 for Renewal Fuels, made up primarily of the aforementioned system, were over $1.8 million. Gross profit was $600,000 in this same period. Sales increased 372% over the identical period in 2007, showing tremendous increase in demand. While this rate is unsustainable, there has still been growth in sales since the product has been out-licensed. There are a number of bio-diesel retailers who can confirm this fact. Altogether, using a modest growth rate of 30% derived from the collaborated evidence offered by retailers, one can assume annual revenues from the FuelMeister Personal Biodiesel Production System upward of $4,000,000 with profits of approximately $1,300,000. Such a number is nothing to ignore – these profits make an extremely compelling case for another company to pursue a reverse merger with Renewal Fuels. These profits even promote the idea that Renewal Fuels may emerge from bankruptcy with common shares intact and become a fully-reporting company with the SEC again.
4. Technicals. Even disregarding all above information, Renewal Fuels is a screaming buy simply by virtue of technical analysis. Four times in the last two years Renewal Fuels has jumped drastically off of these current levels on the smallest of rumors or no news at all. Accumulation has been occurring consistently for three months while the RSI looks attractive. These jumps in price occur like clockwork every six months or so; Renewal Fuels has reached this time period again and looks primed to rise dramatically from here.
5. Prospect of Reverse Merger or Becoming Current Again. This detail often attracts the most attention for RNWF and deserves to be mentioned. It should be noted that Renewal Fuels actually became a company by virtue of pursuing a reverse merger back in 2007, so the idea is not far-fetched at all. If Renewal Fuels does in fact have steady revenues coming in from the FuelMeister sales, then suddenly the story for a reverse merger becomes even more believable. The other similar possibility - to which we will assign a slightly higher probability - is that Renewal Fuels decides to become current on filings once again. All it takes is one Press Release for the stock to explode in this manner.
6. Other factors. Short selling has been unusually heavy for this Pink Sheet stock; don't be surprised to see Renewal Fuels run simply on attention from this. Also, a new SEC filing from Mark A. Uram, who bought a considerable amount of shares in the Spring, wouldn't be unexpected either. The volume patterns are beginning to look quite similar to the gigantic run made in April/May of this year.
Our Conclusion: Renewal Fuels is staggeringly undervalued at these levels and should be trading at no less than 0.001 without any news whatsoever. However, with the possibility of everything mentioned above, this stock is a perfect lottery ticket for shareholders with little downside. Should any news of a Reverse Merger take place or any news from the company be released, this stock would be in the pennies within moments simply because of the tiny market cap. We see a respectable Reverse Merger valued anywhere between 5 and 10 cents thanks to the intellectual property. Our price target, through probability analysis, stands at 1 cent. Considering the current price of .0007, we believe shareholders at these levels will be handsomely rewarded.
