Editor’s note: This article was first published in September 2013; the share price range, first-half 2013 loss, debt and revenue figures it cites describe Quabit at that time and may have changed significantly since. This analysis dates from September 2013 and is not investment advice. The two charts it refers to could not be recovered.
The last time I wrote about Quabit, it was to include it among the high-risk companies where you could lose your entire investment, together with Urbas, Reyal Urbis, Pescanova… We should not underestimate the consequences that could still hit some companies on the Mercado Continuo (the Spanish stock exchange’s electronic trading market) because of this long, harsh recession.
The thing is, we have several readers who are “in love” with Quabit and think that a long-term investment in this company could be very profitable. And it is true that these are the kinds of companies that, some time down the line, we see up 800% and regret not having bought when we had the chance. It may happen, but it may also not happen. They tend to be high-risk investments: since few investors expect a recovery from companies caught between survival and disappearance, the ones that do climb out of the hole are the most profitable.
Technically, Quabit has one of the worst-looking charts a stock can have.
If we look at this chart from the start of 2013, we can see how Quabit first broke out of a medium-term downtrend channel to form a short-term uptrend channel that could take the stock to 0.07–0.08 euros, where it would meet very strong resistance. It has already made this move many times: rising to that area (0.068–0.072) and then falling back to previous levels. Of course, if it broke through that resistance, the stock could shoot up.
But to understand Quabit’s technical situation better, we need to look at its long-term chart.
As the longer-term chart shows, the stock is still very bearish on every time frame. Between 2009 and 2010 there was a spectacular rebound, which ended in a double top (F.1) that set off another sharp downward leg.
Between 2011 and 2012, while the stock was making lower lows, it formed what could have been a double bottom, which usually leads to a rebound. And it did rebound, but too weakly, so it ended up breaking that support with a new downward leg.
Quabit is currently in a broad sideways range, though one that leans slightly bearish, as it made a new lower low in 2013.
In short, the technical picture suggests that Quabit will stay in that sideways channel between 0.08 and 0.038 euros, and that only its fundamentals could pull it out of the hole.
Quabit’s fundamentals
It is true that Quabit has reported better results, having cut its losses by almost 50% from the previous year, with a loss of “only” 10 million euros in the first half. But it is still a company with more than 900 million in debt (945 million euros after shedding 30 million), which is roughly the same debt as Sacyr Vallehermoso.
The company’s own accounts also show a 92% drop in revenue, from 339 million euros in the same period last year to 25 million euros now. That is the worrying part, because it could have trouble refinancing its debt in the future if revenue does not grow.
What I mean is that Quabit could end up being one of the biggest gainers on the whole Mercado Continuo. But as things stand today, perhaps because I am getting older and can no longer take too many scares, I would only buy it as a speculative play at the bottom of the channel and sell on the technical rebounds, unless the company announced some kind of news that made me think its earnings were about to change course.
But I insist: it is in this type of company that the biggest long-term returns are found, precisely because of the very high risks involved.
Featured image: Emiliano García-Page Sánchez, CC BY-SA 2.0, via Flickr.
