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Why the Phoslock share price could head lower in 2019

The Phoslock Environmental Technologies Ltd (ASX: PET) share price is down more than 25% this week after the “environmental technology” business handed in its 4C quarterly cash flow report.

For the quarter Phoslock reported a net operating cash loss of $3.84 million on sales of $4.65 million in a weak result it put down to large raw material procurement costs.

It’s sticking to guidance for calendar 2019 revenue to come in between $27 million to $30 million. The company had $14.6 million cash on hand at the quarter end. 

It reports that its Phoslock product can be used to treat polluted water masses and it’s particularly targeting China for expansion due to its serious water pollution problems. 

It reports that it currently holds 3,000 tonnes of Phoslock in China and across the globe, with it expecting to sell between 4,000 to 5,000 tonnes over the December quarter. It boasts that it has a “$200 million” pipeline of Phoslock projects in China. 

Based 0n 562.5 million shares issue at a 98 cents share price today it has an eye watering $551 million valuation on around 19x forecast revenues. It reported profit of just $1 million in fiscal 2019. 

It looks the kind of story stock likely to attract less-sophisticated retail investors even though it’s overvalued. I expect its shares will continue to track lower through 2019 as it doesn’t look the kind of business to interest credible investors.

Other ‘story’ stocks that have soared on hype only to tumble on financial reality include the likes of pot stocks Auscann Group Holdings Ltd (ASX: AC8) and Cann Group Ltd (ASX: CAN). While iSignthis Ltd (ASX: ISX) remains suspended while both securities regulators look into alleged irregularities and disclosure failings at the same time. 

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

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 Scott Phillips.

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