Reviewing the Ezentis investment

Editor’s note: This article was first published in January 2014; the share prices, support and resistance levels, reverse split, planned acquisition of a Spanish company and expected results it discusses are all from that time. These January 2014 trading calls are kept as a historical record. They are not investment advice.

First of all, I should say that although I try, I am not sure how impartial I can be when talking about Ezentis, since it is the company with the biggest weight in my investment portfolio. I like this company and the job Manuel García Durán is doing at its head. So, to be more impartial, we are going to analyse the company’s new situation by focusing on its most negative side and paying close attention to the most adverse things that could happen.

After the reverse split, the rally has stalled and the stock is correcting, although that is normal after gains of more than 300%. Technically, the correction could extend to €1.36–1.35 and still be within the normal range. If that support is lost, the correction could extend to €1.10, and from there it could reach €1.

That is a very adverse scenario, but a possible one, just as it is unlikely but perfectly possible that Ezentis could fall below one euro because of speculative attacks.

Negative things that could happen at the company

1. The company is buying other companies. García Durán said he was thinking of buying a Spanish company, and Ezentis’s current policy is to reduce debt, so it could perfectly well buy companies and meet future payments with new capital increases, a moment speculators would seize on to push the stock down even further.

2. Although I like the company for the long term and think all these ups and downs on the stock market could end up translating into juicy profits over the long run thanks to its fundamentals, I understand that we will probably see the next results come in below supposed expectations. In other words, the results could look negative in the short term, although they would read well for the long term.

3. Just yesterday I saw this question about Ezentis in the stock-market Q&A column of La Opinión (A Coruña):

–What do you think of Ezentis?

–It’s a chicharro (Spanish market slang for a speculative penny stock), a stock with low liquidity and high volatility. Extremely dangerous. No non-professional investor should put a single euro into stocks with this profile. That said, if it breaks above €1.752, it would trigger a bullish secondary structure with a target of €1.894. If it loses €1.36, it could correct sharply towards €1.13.

Ezentis was a chicharro for many analysts when it was trading at €0.12, but those same analysts recommended it once it passed €0.36.

Now analysts will crop up again who see the devil in every correction. If we read this “investment adviser’s” advice carefully, he is telling you not to buy Ezentis at €1.40 because it is a very dangerous stock, but that if it passes €1.752 it will be a good investment opportunity… No comment.

As I always say, I have no idea what the stock is going to do. It may break through those resistance levels and reach €2, or it may lose €1. Nobody knows. All we can do is sketch out all the possible scenarios.

1. If you are out of the stock, I wouldn’t buy right now.

2. If you are in, I wouldn’t sell. If the falls continue, I would average down.

Now, if you are one of those who want to take a risk as a trader, you can always keep an eye on whether Ezentis fails to get above the €1.45 area in the next few sessions, because, if the right circumstances arise, the stock would probably head down to €1.36 to try to hold there. That would be a moment to try to get in with a very tight stop-loss. Of course, that is more gambling than investing.

Featured image: Javi Guerra Hernando, CC BY-SA 4.0, via Wikimedia Commons.