Applied DNA Sciences Inc. is a speculative opportunity in an emerging sector

Dec 19th, 2012 – Comment

If you are compelled to catch a ride don’t bet the farm on this mighty mite.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Lou,

I have a stock for you to investigate. The stock is Applied DNA Sciences. It trades over the counter. A PhD scientist friend of mine is very excited about this stock and he is confident that it will be huge. However, as Jim Cramer says “tips are for waiters”; so I would appreciate your perspective.
Thanks in advance.
Ron.

 

Hey Ron,

 

Thanks for the assignment. Applied DNA Sciences Inc. ( APDN OTC BB) has developed DNA solutions to prevent counterfeiting of everything from microprocessors, nuts and bolts for jet aircraft, and fabrics. The company has also developed systems to replace dye packs used in protecting the transportation of cash and authentication of documents. On August 16, 2012 the Defence Logistics Agency, an arm of the U.S. Department of Defence, named the company as the provider of authentication services for microcircuits supplied by defence contractors. The need for authentication surfaced in audits that found counterfeit parts in the supply chain for military contracts.

Having said all these wonderful things I want to bring to your attention the risks associated with investments that have the following characteristics. The market place where stocks are traded have an implied risk because of the reporting requirements expected of listed issuers. The reporting and listing requirements on the OTC BB are designed to encourage nascent organizations to use the public markets to raise money. In my evaluative process the OTC BB is a higher risk environment which has to be on your radar when considering investing your hard earned capital in a stock.

In addition the market capitalization of APDN is under $200 million which adds another level of risk. The smaller the cap the higher the risk. Finally the financial case for the investment needs to be considered. The due diligence conducted on your behalf indicated that revenue in fiscal year 2011 was reported at $970,000. The estimate for fiscal year 2102 is $2.1 million. What also has to be assessed is the cash burn rate which would suggest that the company will have to raise more money to accomplish their business plan. Finally the fact that one customer represents close to 50% of sales raises the issue of revenue concentration.

Bottom line this a speculative play. A review of the charts will add additional depth to your decision.

 

The three-year chart depicts the move higher in August on the announcement from the Defence Logistics Agency. What is worth noting is the resistance at $0.30 that has developed since September of 2012. It should come as no surprise that investors who caught the ride at $0.02 in July would be cashing in their 15 bagger win. The MACD and RSI both signalled that the advance was going to face some selling pressure.

 

 

 

 

 

The six-month chart illustrates the resistance at $0.30 and the sell signals generated by the MACD and RSI in late September. There is support that comes in at $0.175 and below that at $0.125. Currently the MACD and RSI are indicating that we can expect more selling. Another factor you should consider in your evaluation is liquidity. The average daily volume over the last three months is 3.2 million shares. If you use the facilities of globeinvestor.com you will find a lot of useful information including this table http://www.theglobeandmail.com/globe-investor/markets/stocks/chart/?q=APDN-Q2. I use it to conduct volume analysis. It gives me a sense of investor enthusiasm for a stock. Over the last 30 days volume exceeded the average on only 5 days. I generally prefer an environment where volume is growing steadily. The large volume days where we saw fourteen to twenty three million shares trade are a classic case of distribution. Investors in profit were happy to cash in.

 

In summary APDN is a high risk investment. If you are compelled to catch a ride don’t bet the farm on this mighty mite.

 

Make it a profitable day and happy capitalism!

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