This High-Flier Could Fly Higher

In December 2013, I profiled Net Element Inc. (NASDAQ – NETE - $2.45) at a price of $2.23 a share and the stock doubled within three weeks. Since that meteoric rise, the stock has languished, reaching a nadir of $0.88 a share less than a week ago. (Boy, what a trade that would have been.) Anyway, with the stock essentially back where it was in December, I thought it would be an opportune time to revisit the story and take its temperature to see if it is worthy of another favorable missive. The answer is: Yes.

For the uninitiated, Net Element is in a hot space (mobile payments) and is generating strong results via an acquisition that closed in 2013. Net Element owns and operates a global mobile payments and transaction processing provider, TOT Group. TOT Group companies include the recently acquired Unified Payments, recognized by Inc. magazine as the No. 1 Fastest Growing Private Company in America in 2012. Tot Group also owns Aptito, a next-generation cloud-based point-of-sale payments platform.  Tot Group also owns TOT Money, which holds a leading position in Russia and has been ranked as the No. 1 SMS content provider by Beeline, Russia's second-largest telecommunications operator. Together with its subsidiaries, Net Element enables e-commerce and adds value to mobile commerce environments. Its global development centers and high-level business relationships in the United States, Russia and Commonwealth of Independent States strategically position the company for continued growth. The company has U.S. headquarters in Miami and international headquarters in Moscow.  

Fast-forward to 2014 and the stock endured big declines following the closing of a $30 million financing. It continued to decline even after first-quarter results were issued.  For the first quarter of 2014, the company reported revenue of $4.8 million versus approximately $900,000 in the year-earlier period. Net Element was also cash flow positive but still recorded a multi-million-dollar loss and was drowning in total liabilities of $34 million. The bottom line is that the results were improved but they didn’t knock the ball out of the park. To its credit, management secured a $10 million financing earlier this month to help with its capital and growth needs, but potential dilution must have spooked investors as another sell-off ensued.

A new buy recommendation with a $3.47 price target from a small research house sparked the tiny float stock (500,000+ shares) to soar on more than 10x average daily volume.  Look at the big picture and it is easy to see that with a low float and in a hot space, these shares could reach a peak price of $4.50 again on positive news, which will likely be in the form of the second-quarter results, expected next month. Still, Net Element is one of the most volatile stocks we have come across and investors should be aware that these shares are prone to big swings. But, if played right, quick trading profits can be yours.  

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