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(Innovative Composites)
(Innovative Composites)

Schizas’ Mailbag

Don't buy Innovative Composites until trend reverses Add to ...

Hi Lou,

Could I get your opinion on Innovative Composites on TSX venture exchange.

Thank you,

O. Shahi

Hey O.,

Thanks for the assignment. Innovative Composites International Inc. (IC-X) is in a sector that I like. New material sciences provide for breakthrough opportunities that allow for reduced costs and improved performance. IC has developed a method of recycling used plastics and creating a series of lightweight panels for use in the housing, storage and transportation industries.

The rub in this case is that a company with a market capitalization of $14-million, sales of less than $8-million and operating loses, will find it hard to keep investors excited.

A review of the charts will help inform our thoughts on IC.

The three-year chart indicates that the dream of replacing established materials in housing, storage and transportation will take longer than anticipated. When that reality hit home astute investors made their way to the exits taking their profits with them.

The uptrend was breached in November 2011 and the shares have been in selloff ever since. The catalyst for the decline was a bought deal that raised $10-million at $0.75 a share, which introduced the issue of dilution of existing shareholders. The lesson to be learned from this chart is that investors who have taken a high-risk ride need to book profits before they are no longer available.

The six-month chart illustrates the resistance that the stock has met along the 200- and 50-day moving averages and its inability to form a base. The death cross that surfaced in January 2012, and the established downtrend, adds another layer to this high-risk investment.

I wouldn’t be a buyer until the downtrend is reversed, and that isn’t likely to happen until it finds a bottom starts to build a base.

Make it a profitable day and happy capitalism!

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