As Clean Diesel Technologies (CDTI) attempts to leave a terrible earnings report behind, a series of slippery mudholes stretch out in the road ahead.
The Oxnard, California company focuses on emission control products for light trucks and cars.
But TheStreetSweeper expects the stock to fall face down in one or more of the following five mud puddles:
*1. Burning Cash: Raise Ahead
The company is burning cash at the rate of about $3.5 million per quarter.
Cash coffers, at the end of last year, contained just $7.8 million.
At this point, Clean Diesel is practically running on fumes. It should have barely enough cash to operate another quarter.
The snapshot below summarizes the cash and declining revenue problem:
(Source: CNN Money)
So, Clean Diesel has to raise more money soon.
And since it historically operates in the red, it will continue to search for operating cash via debt deals or potentially dilutive stock sales well into the foreseeable future.
Average investors will find little or no relief from the company’s poor financial condition… a condition that resulted in negative earnings per share of $ -2.71 in 2015 becoming even worse at $-3.84 EPS last year.
*2. Big Losses, Going Concern: CEO Gets Raise
Indeed, the company lost $23.5 million last year and overall losses have accumulated to $223 million.
Auditors have expressed serious doubts about the company’s ability to continue as a going concern.
Yet guess what is on the stockholders’ meeting next month?
Shareholders will get a peek at the salary of the executives who are steering this wreck…
The disclosure to shareholders includes the salary of CEO Matthew Beale … whose compensation has accelerated to $1.36 million.
(Source: Company SEC filing, TheStreetSweeper)
*3. Promotion: Bought-and-paid-for
Meanwhile, some incredibly kind-hearted soul is financing the creation of a pretty rosy picture of Clean Diesel. What amounts to a company advertisement was released just yesterday, April 24, in the form of a research report by RDI.
Below is part of the promoter’s disclosure:
“RDI receives compensation from third party organizations for advertising services provided in the form of email newsletters.
RDI and its affiliates, officers, directors and agents have been compensated for featured company coverage and therefore information should not be construed as unbiased.”
Solid companies worth investing in do not need … or want … such paid promotions.
This bought-and-paid-for promotion is even more concerning because an undisclosed third party paid for the report.
*4. Stock Is Up: Yet Chief Customer Says Goodbye
Driven by absolutely no news – but probably assisted by the promotion - Clean Diesel stock has shot up in the past month by about 27%.
Yet Clean Diesel is losing a major customer, Honda, as the carmaker phases out current vehicle models. Honda accounted for 96% of Clean Diesel’s coated catalyst sales in 2016.
The company depends on Honda for most revenue through this year.
Catalyst revenue will decline swiftly in the fourth quarter, the company reports … and cutbacks are already grinding earnings per share down to $-0.69, missing estimates by $-0.58 and cutting revenue to $8.55m or ~12%.
The company reports the worst is ahead:
The revenue will “end in the first quarter of 2018.”
*5. Trump Troubles: Emission Rules Relax
The environment for emissions control companies like Clean Diesel is expected to get worse.
President Donald Trump recently signed an executive order designed to reduce the previous administration’s climate change mitigation efforts. New Environmental Protection Agency chief Scott Pruitt has signaled the agency may apply the brakes to those vehicle emission regulations… creating a bumpier road ahead for suppliers like Clean Diesel.
Clean Diesel is like a hopped up, over-heated jalopy that can putter only so far before grinding to a stop. Sometimes you’ve just got to leave the wreck at the side of the road and walk away.
TheStreetSweeper expects this stock to quickly drop by 30%, later driving off the cliff to $1 and change.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in CDTI and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected]