In April 2021, I wrote a low SA article on Global Tech Industries Group (OTCQB:GTII) saying it looked like one of the most overvalued companies I’ve come across in my investment career as his market valuation exceeded $600 million while his total assets were $44,470.
I was surprised to find GTII among the most traded stocks on the OTC market in recent days and its market capitalization has risen to $785.3 million at the time of writing.
Overall, I think that GTII’s business projects have not performed well over the past 18 months, and that this might be a good time to open a small short position. let’s review
Overview of the latest developments
GTII can be described as a small conglomerate, and when I took a look at the company in April 2021, it had recently signed agreements to purchase a gold trader (Gold Transactions International), a telecommunications service provider (Jabber Telecom), a scope optometry solutions (Bronx Family Eye Care) and a non-fungible token (NFT) marketplace (through an agreement with Ronald Cavalier, the founder of Cavalier Galleries).
The Jabber Telecom deal seems to have fallen through as there is no mention of this company in GTII’s financial reports for the past few quarters. Bronx Family Eye Care was purchased in December 2021, but the parties later concluded that it was in their mutual interest to proceed with the acquisition. GTII issued 4,150,000 shares for this purchase and I expect them to be canceled in the near future. Turning our attention to the NFT deal, GTII purchased two pieces of art for eventual digitization for a total of $67,845. GTII mentioned in its Q2 2022 financial report that it plans to distribute NFTs to shareholders as a dividend, but I doubt there is much value here as interest in this asset class has declined significantly in recent months. According to data from Dune Analytics, the global NFT trading volume stood at $470 million in September 2022, which represents a 97% decrease over a 9-month period.
According to GTII’s Q2 2022 financial report, the purchase of Gold Transactions International closed in June 2022 and the company assumed a license that gives it access to a network that buys gold from artisanal miners internationally and then offers services of transportation, testing, refining and storage. to a free trade zone in Dubai. This license was valued at $12.9 million, and GTII issued 6 million shares and assumed $4.97 million in debt as part of the deal.
However, I’m concerned that the company overpaid here as the new subsidiary had revenue of just $0.13B and net income of $0.07B in 2021.
Furthermore, Gold Transactions International is currently a wholly owned subsidiary of GTII, but the latter did not have a single dollar of revenue in the second quarter of 2022.
Turning our attention to GTII’s balance sheet, I believe the situation remains challenging as the Gold Transactions International license accounted for more than 96% of total assets as of June 2022. Cash was only $0.35 million. while current liabilities stood at $3.26 million as of quarter-end. Additionally, long-term liabilities include a $4.84 million note payable related to Gold Transactions International.
However, GTII’s market valuation has skyrocketed in recent days and stands at $785.3 million at the time of writing. So what is the reason behind this move? Well, the most significant recent event was on September 14, when GTII announced the purchase of a legal marketing company called Wildfire Media Corp through the issuance of 100 million shares. The transaction includes an earnout payable if Wildfire achieves $25 million in revenue and $85 million in credits, implying that this is not a large company. Overall, I doubt this acquisition will be the catalyst for the significant increase in GTII’s share price as trading volume started to skyrocket on September 21st, which is a full week after the deal went public.
In my opinion, the stock prices of small-cap companies can rise for spurious and unknown reasons, and we’ve seen this happen with this stock several times over the past few years. Historically, these big share price gains have been short-lived as the fundamentals simply aren’t there and I think this time is unlikely to be any different. In my opinion, this creates a window of opportunity to open a small speculative short position.
According to Fintel data, the commission rate for short-term loans currently stands at 38.75%. The risk of a short squeeze looks low as the short interest is only 0.24% of the float and it only takes 0.08 days to cover at the moment.
Looking at the risks to the bearish case, I think the main thing is that there is no clear reason behind the recent increase in GTII’s share price, which means that it is impossible to predict how high the market capitalization may go. An example that comes to mind is Athena Bitcoin Global (OTCPK:ABIT), whose market cap had topped $130 billion when I covered it in SA in September 2021. Unfortunately, there are no call options available for GTII, so no you can cover this risk.
To bring investor
GTII had no revenue in the second quarter of 2022 and its tangible assets barely exceeded $0.5 million in June. The company’s fundamentals don’t look much better compared to April 2021 and I don’t expect them to change much in the near future.
I believe GTII’s share price is likely to drop back below the $1.00 level in the near future as the increased market valuation appears unjustified from a fundamentals perspective. However, I find it impossible to predict what the stock price may become and there are no call options available, so I think investors should limit the size of short positions. For risk averse investors, I think it would be best to avoid this stock.