Why did OBJ Limited surge today?

OBJ Limited (ASX:OBJ) talks the talk again.

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The share price of OBJ Limited (ASX: OBJ) surged today with stock changing hands at 9.2 cents in early afternoon trading, up 18% on Friday's close. The reason for the rise is unclear although the company was featured in an article in The Australian over the weekend.

OBJ has developed a technology which uses magnetic repulsion to push molecules through the skin. The company has shown that their method significantly improves the delivery of certain skincare products.

The company is targeting the fast moving consumer goods market (FMCG) and has a product development agreement (PDA) with behemoth Proctor & Gamble (P&G). The agreement covers multiple product categories and the fact that such a recognised industry name is collaborating with OBJ suggests the technology has significant potential.

To date, just one product has been released which uses OBJ's technology, the Wave 1 Eye Wand, sold as part of P&G's SK-II brand. However, the company is hoping to develop multiple products with P&G as well as sell its technology through other partners.

OBJ recorded revenue of just $1.4 million in the first half of 2016 up from $1.1 million in the prior year. Despite this, the company is capitalised at $163.3 million and so the market seems to be optimistic about its future.

That optimism could have something to do with the tone of the company's public communication. For example, in The Australian's article chairman Glyn Denison is quoted as saying,

"As it grows, this company will be a significant pharmaceutical company in Australia in its own right. It's only a matter of time."

Similarly, founder and director Jeffrey Edwards says when speaking about the company's deal with P&G,

"We are at the heart of their whole innovation."

I am not a fan of companies that make such bold claims, especially when the individuals making them have been reducing their shareholdings over the last couple of years.

I actually used to own shares in OBJ and was lucky enough to double my money when the company signed its PDA with P&G in April 2014. I sold them shortly afterwards when I belatedly figured that profitability was still some years away.

For me, the trouble with stocks like OBJ is that there is simply not enough information available to come up with an approximate valuation. I would rather focus on profitable businesses, or at least those with significant revenues.

Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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