NEW YORK (TheStreet) -- Investors who have missed the recent 400%-plus rise in Lot78 OTC should know there might still be time to profit from this stock's coming plunge, because it is a complete scam/pump-and-dump.
Investors could quickly grab some shares now and then sell them quickly, taking profits. Or they could try to find shares to sell short.
Lot78 says it focuses on the design, marketing, distribution and online sale of its eponymously named urban apparel in five continents.
As an ongoing business entity, Lot78 has zero revenue and net losses of $38,000 for the most recent reported quarter. It also lost $21,000, $2.0 million and $2.0 million, respectively in the three previous quarters. It has $5,000 in cash to cover $148,000 in current liabilities at the end of last January.
What Lot78 does have is a very effective investor relations campaign.
According to Google Finance, the beta for Lot78 is 38.00, while the beta for the market as a whole is 1. The people hired by Lot78 to promote the stock are obviously very effective at moving the stock price, as shown by the chart below.
Courtesy of Yahoo! Finance
Lot78's stock promoters recently sent out a "touting" mailer that urged investors to buy the stock, compared the company to True Religion and included a bullish company press release that -- conveniently -- had no hard numbers.
The mailer is identified as a "Breakaway Stocks Special Report," which might lead some readers to believe it's from reputable stock analysts.
Smallcap Fortunes/Capital Financial Media sent the mailer on behalf of Lot78. A headline on the mailer says, "Now, Lot78 (LOTE) Could Be Your Next Chance At Grabbing A Giant 5,300% Profit!"
In the body of the press release, Ollie Amhurst, President of Lot78, makes lots of bullish statements about the company's newly added e-commerce offering:
"The addition of our e-commerce capability is a very important step in diversifying our sales channels, opening up markets and growing revenue. We are ready to significantly grow and diversify our product line, which will enable us to enter much larger markets. In conjunction with our existing strategy in our wholesale division we intend to target not only the core fan base of Lot78 but also to reach a far wider audience through our website."
Following, however, is the fine print associated with the mailer:
"CFM has managed a total production budget of up to $2,500,000 for advertising efforts and will retain any amounts over and above the cost of production, copywriting services, mailing and other distribution expenses, as a fee for its services."
Smallcap Fortunes/Capital Financial Media are handling a budget of up to $2,500,000, which means that the actual budget could be anything less than that, and the promoters pocket the difference. Just like any other pump and dump scheme, Lot78 stock will collapse once the promotion winds down.
Lot78 is a blatant pump-and-dump. The Securities and Exchange Commision defines pump-and-dumps at its Web site as follows:
"Pump-and-dump" schemes involve the touting of a company's stock (typically small, so-called "microcap" companies) through false and misleading statements to the marketplace. These false claims could be made on social media, as well as on bulletin boards and chat rooms."
Volume soared last week. After shares traded for less than $1.50 on Wednesday, they ended the week at more than $6. There was no news to justify the price soaring, just this mailer that has showed up at thousands of households across America.
As a result of the price action, Lot78 now has a market capitalization of almost $350 million. That is for a company with $5,000 in cash that is losing money.
The recent movement of the share price reveals there have been plenty of "greater fools" buying the stock.
Over the last 52 weeks, Lot78 has traded from a low of 13 cents to its recent level around $7.75.
If you own LOTE, it's time to take profits. Don't get caught holding that dirtbag as it will collapse back to pennies very soon.
-- Written by Ben Brinneman in Charlotte, NC, owner of C Squared Trading, which teaches how to trade legitimate "penny stocks," priced between $2 and $10.
At the time of publication, the author held no positions in stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.