Datametrex AI Limited (TSXV: DM) had an excellent trading day yesterday. After an early morning news release, the company gapped up a few pennies. It then slowly climbed throughout the day, before closing at an all time high of $0.47. This represented an excellent gain of 36% from the previous days close. In addition to this, it was also the highest volume stock on the Venture, with over 9 million shares trading hands.
Although this was an absolutely exhilarating day for long term investors, it’s unlikely that such days will exist for long. As the price of Datametrex continues to rise, it will increasingly be held down as a result of cheap paper. This cheap paper exists as a result of previously poor performance by the company. It was forced to do financing at low price levels, which in turn rapidly diluted the share structure of the company. Until this paper has rotated hands, it will likely prevent upward momentum from occurring.
The Share Structure of Datametrex AI
The data concerning Datametrex’s share structure is slightly difficult to compile. Prior to the amalgamation that took place this past summer, the shell company of Everfront had approximately five million shares outstanding. However, due to the transaction being in the form of a reverse takeover, later financials represent the figures related to Datametrex AI during the time period, not the shell that was Everfront. This in turn makes it slightly difficult to determine the initial cost basis of several shares outstanding for the company. Bare with us on this.
To begin our analysis on the share structure of the company, we’ll first identify the capital raises that have been performed. We’ll also include any shares that have been issued as a result of acquisitions. For this, we are only concerned with what occurred following the amalgamation that took place.
Due to the low share price, raising any funds has caused large dilution. As seen in the chart above, Datametrex has added just under 177 million shares to the float since the amalgamation that took place. Worst of all, is that the majority of this paper is at the $0.15 or below mark. This will provide serious selling pressure as the stock creeps towards a full dollar. It also inhibits the ability for future raises.
In addition to these current financings, there is a letter of intent on the table. This agreement stands to add approximately another forty million shares to the current share count of the company. The one optimistic point about this purchase, is that it is at a price of $0.25. Although this still limits upward momentum, it is much better than previous pricing.
Also of note related to these financings, is that the most recent raise contains a forced conversion clause. Should the price of the security exceed $0.20 for a period of fifteen consecutive days, the company can opt to force the exercise of warrants. The units from this raise are in lockup until March 21, 2018, so it is unclear if the company is able to force the exercise until that point in time. Otherwise, conditions have been met for this clause to be enacted. This could provide a means of income should the company require it for a future acquisition.
Overall, the share structure of Datametrex leaves something to be desired. We’re a fan of tight floats that enable companies to grow down the line. For Datametrex, what began as an excellent float quickly ballooned to a much larger size. Yes, the financing was used to acquire assets. However, that doesn’t mean it doesn’t limit future growth potential.
It is estimated that at the time of writing, Datametrex AI has approximately 159 million shares outstanding. As of the closing price on December 18, this gives it a market capitalization of $74.7 million. Based on our estimate of 248.5 million shares on a fully diluted basis, this would give a fully diluted market cap of $116.8 million.
The figures used for the share count and fully diluted share count were based on information provided in company news releases. We are aware that these numbers do not presently match what is displayed on TMXMoney. We simply used what information was publicly available. Additionally, these figures do not include dilution from the recently announced letter of intent.
Datametrex AI’s Insider Activity
When it comes to insider activity, we consulted Sedi.ca. Typically, we use Canadian Insider due to its easier to view format. However, we quickly realized that the numbers didn’t add up based on what we read in recent news releases. As such, we had to go to the source which painted a different picture.
Overall, it is estimated that insiders own approximately 47.9 million shares of the company, or approximately 30.18%. Of this, there are a few notable holders. Most significantly, is that of chief executive officer Andrew Ryu, who owns 19.8 million shares which is 12.45% of the company. He previously held an over 20% stake in the company before the latest raise. Another notable stakeholder is Jonathan Hobbs, chief technology officer of Datametrex AI who holds 13.4 million shares in the company.
Also of note, is the snippet seen above. In an attempt to drum up faith in the company, Datametrex publicly stated that insiders are continuously purchasing the equity. This was likely done as a show of strength to investors, who had been beaten down as a result of a declining share price. At the time, it also indicated that the company felt they were worth more than double the current market that the market had given them.
Datametrex investors have had an excellent run up on this stock since mid November. Countless investors have likely doubled the value of their investment in this time frame. However, don’t expect this run to continue at the rate that it’s been going at. With the cheap paper presently available on this stock, the selling pressure will likely become quite heavy in the oncoming days.
One saving grace for investors, is the fact that the latest round of financing has shares locked up until mid March. That prevents over fifty million cheap shares from dragging down the price of the equity for the time being, as well as the associated sixty million warrants. However, expect these to provide a significant pressure once they become available for sale on the open market. If the company elects to force the exercise of warrants, this force could be twice as strong. Until then, best of luck with your investment!
Always inspect the share structure before investing. It can literally make or break a stock. Dive Deep.
Information for this analysis was found via TMXMoney, Sedi, Canadian Insider, and Datametrex AI Limited. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.