Therma Bright Puts Skin in the Game

Two weeks ago, I reviewed two penny stocks that recently shot up in value. If you had the guts to buy Transocean Ltd. (NYSE: RIG) or Luckin Coffee (OTC: LKNCY) a month ago, you would now be sitting on some very nice gains.

This week, another penny stock more than doubled in value in just two days. On January 15, Therma Bright (TSXV: THRM.V) opened at a share price of 36 cents. That day, the company announced it had appointed an industry veteran to its advisory board to oversee the rollout of its COVID-19 saliva test.

The stock market’s initial reaction to that news was positive but muted. By the end of that day, the stock was trading for 49 cents. That’s 14 cents above where it closed the day before.

But over the weekend, the algorithms that search for COVID-19 stocks must have finally discovered Therma Bright. On Monday, the stock shot up to 92 cents for a gain of more than 1,200% over the past six weeks!

Not a single analyst on Wall Street follows the company. The fact that it is domiciled in Toronto, Canada further shrouds it from investor scrutiny. That may be why it took a few days for the market to react to what may be big news.

This story has been several months in the making. On October 8, the company announced that it had obtained funding to develop a saliva test for COVID-19. Nevertheless, the stock did not budge on that news.

That is understandable, given how often penny stocks crash and burn. They all have a sexy story to tell. And right now, anything having to do with fighting COVID-19 is about as sexy as you can get.

Once Upon a Time

When I started out as a stockbroker nearly 40 years ago, my manager referred to penny stocks as “fairy tales for fools.” Back then, you didn’t have the Internet to fact check the mythology behind a company.

You also could not conduct a background investigation on the people involved with the deal. For that reason, the same cast of undesirable characters could go from one shady deal to the next without detection.

That is no longer the case. These days, you can quickly verify or refute a factual claim by conducting a simple Internet search. You can also get a good idea of what business a company is really in.

Until six months ago, Therma Bright was in the business of developing skincare treatment using heat and light. According to the company website: “Therma’s current product lines address cold sore treatment and prevention, and the treatment of pain, itch and inflammation related to mosquito, bee, spider, mite, and jellyfish bites or stings.”

Anyone who has suffered from any of those maladies can attest to the usefulness of a treatment for them. But let’s be honest, treating jellyfish stings and mosquito bites won’t excite anyone on Wall Street.

Hence the need for a flashy product announcement to pique investor interest in the company. In this case, the decision to pursue a COVID-19 saliva test has revived Therma Bright’s otherwise dismal hopes.

Last month, Therma Bright announced that it received $300,000 from the exercise of warrants and options. More than half of that amount came from directors and officers of the company.

Therma Bright also granted incentive stock options to consultants to the company. They can buy up to 450,000 shares of Therma Bright common stock at 22 cents per share over the next five years.

Betting the Ranch

At the same time, the company hired an investor relations firm that specializes in promoting microcap stocks such as Therma Bright. It appears that this company believes now is the time to put all of its chips in the middle of the table and bet the ranch on a hit product.

All of those elements make Therma Bright a classic “get-rich-quick” type of penny stock story. If it succeeds, all of those stock options and warrants could become immensely profitable. Already, the options that can be exercised at 22 cents are worth nearly four times that amount.

It remains to be seen if this Hail Mary pass results in a game-winning touchdown with no time left on the clock. It is one thing to stir up investor interest in a microcap stock. But it is something else altogether for that company to become profitable.

Bear in mind, even at its current price Therma Bright has a market cap of only $163 million. And that is more than 12 times what it was worth just six weeks ago.

That’s why I’m steering clear of this stock. I have no idea if its saliva test for COVID-19 really works or not. Even if it does, I don’t know if it can be produced and marketed in time to cash in on the coronavirus pandemic craze.

What I do know is that very small companies with negative earnings and a sudden shift in focus frequently go out of business. I hope that doesn’t happen this time, but I wouldn’t bet my hard-earned money on it. Instead, I prefer investment strategies based on proven methodologies for making money in the stock market.

Editor’s Note: As Jim Pearce makes clear in the above article, investment risks still lurk around the corner. More than ever, you need to be selective with your investments.

The economy is improving, stocks are rallying, and the roll-out of vaccines provides hope that we’ll get the coronavirus pandemic under control. But we’re not out of the woods…not by a long shot.

That’s why our investment team has put together a special report: “5 Red Hot Stocks to Own in 2021.” In this report, we provide the names and ticker symbols of the highest-quality stocks to own for the new year. Click here for your copy.