Always interested to know who is saying what and how it might be related to any given price activity either UP or DOWN.

https://keystocks.com/stock-talk-podcast-show-notes/stock-talk-podcast-episode-267-show-notes/

Stock Talk Podcast Episode 267 Show Notes

YSOT Poet Technologies POET:NASDAQ PTK:TSX

1)

We got a question on Poet Technologies symbol PTK on the TSXV and POET on the NASDAQ asking if it has 20x potential.

Poet Technologies is a designer and developer of optical interposers. The company’s Optical Interposer is an optoelectronic solution that allows for the integration of electronic and photonic devices onto a signal chip for usage in high-speed communication for data-intensive applications. Effectively the goal of the product is to scale down existing optical transceiver solutions into a smaller design allowing for cost savings.

2)

The stock is currently $3.18 on the Nasdaq down 15% over the past year, but has recovered significantly from its low of roughly $0.80 late last year, causing a 6-month increase in price of 132%. So, clearly a volatile stock price. The market cap is at $209 million at this time.

3)

A quick look at the financials, there is not much substance to it at this time. For Q2 2024, the company had no revenue with low inconsistent revenue in prior quarters, but nothing substantial at this time. The company does have non-consolidated revenue in a joint venture

Unsurprisingly a significant cost is R&D expense at $2.6 million which includes a notable stock compensation component of about $0.5 million.

SG&A came in at $4.1 million with stock compensation being $1.1 million of that.

Total operating expenses came in at $6.8 million for the quarter and $11.9 million for the first 6 months of the year.

The net loss of the quarter was $8.0 million or $0.14 a share.

4)

The company balance sheet is comprised of $21.2 million in cash, no debt but leases of $$0.4 million resulting in a net cash position of $20.8 million. Not bad right? However, as I said the company is not producing any material revenue as far as financials go

For the first six months operating cash flow before working capital was a deficit of $8.1 million, so the cash is from raising capital.

5)

Notably the company was effectively out of cash run way at the end of Q1 and then proceeded to conduct private placements and at the market issuance to raise capital. The company at the end of Q2 now has 61.7 million shares outstanding, 11.8 million warrants, all in the money and 9.5 million stock options – all in the money, meaning if they are all exercised the the company has diluted outstanding shares of 83 million.  I will note only 2.6 million of the options are exercisable at this time. Through all this, the company has raised $29.5 million in the first 6 months of the year, more than its existing cash balance. If fully diluted the company would get in the ball park of $40 million in additional cash.

Additionally, after quarter’s end on July 19, the company raised another $10 million US through issuance of 3.3 million of both shares and warrants, so further dilution.

The summary of all this is the company needed cash, significantly diluting the company since the start of the year. Just for comparison the non-diluted outstanding shares at the end of 2023, was only 41.3 million.

6)

Bringing back to the initial comment of” is this a 20x stock”, to give a rough idea the company would be at a $4.0 billion market cap with its current share structure, but if it were to rise to even a much lesser degree it would be fully diluted putting it at a $5.5 billion market cap, and that is not counting for further dilution which would likely occur in the meantime. Just the sheer size of the market cap for a zero-revenue company which is currently relying on significant dilution is absurd. Even optimistically valuing a computer hardware company at 5 times sales, you’re already looking at $1 billion in revenue, which is a massive leap, to say the least. This would mean Poet would need to take a significant portion of the competitive optical transceiver market.

Going back to reality the company has massive risks in front of them first they need to get a product to market, on mass at commercial volumes, which in itself requires customer uptake which is a hurdle to scaling, further the product needs to be profitable at scale. And this needs to be done before the company gets diluted into oblivion.  We always get comments along the lines that to get a high-return stock you need to take risks, yes you do but your job as an investor is to find the best risk and reward tradeoffs and just looking for the risky pre-revenue stocks is not a substitute. As well, the company is having most of its near-term projects through a joint venture of which it owns

So let’s say a year from now they start to get revenue and start to build a customer base, then it may be worthwhile, as yes the price may have increased but if the company can have a pathway to profitability past quoting the expected market size of various industries total addressable market and saying if we only capture 1% of this market.

It may be worthwhile someday, but I would not count on it as the current fundamentals are so far off of being appealing.