ADVFN breaks down – is there a profit warning coming down the pipe?

Regular readers will know that we suggested a short position on ADVFN back in the Feb edition of our magazine (see here page 16 – http://issuu.com/spreadbetmagazine/docs/spreadbet_magazine_v13_generic?mode=window&pageNumber=1). For those that haven’t read our bear case, we recommend that you take a look at the well reasoned argument.

A reader brought the stock to my attention again today as the share price broke down through the bottom of a falling pennant formation last week and as the chart below relays. You can see that there was decent volume of over 5m shares last week too – the highest for quite some time. A falling stock price on rising volume, particularly one that is relatively tightly held like ADVFN is a bad sign in my experience. 

We all know in the industry that advertising dollars (which is essentially what ADVFN relies upon as the susbcription revenues barely cover operating costs) have been thin on the ground, and in looking at ADVFN’s site it’s plain for all to see that the primary ad slots are not being sold, rather being filled up with onefreesharetip.com and ebook promo’s and the like that are probably generating minimal revenue.

News that Ray Negus sold his entire stake for a relatively paltry £40k pending his retirement does not bode well too – I can only surmise that either he needs the money for his retirement (!) or he doesn’t see much upside in the stock going forward otherwise why would you sell?

Given that CEO Chambers reported only £1.4m of cash and near cash resources at the last set of results to 30 June 2012 and we are now 9 months henceforth, my guess is they have less than £500k on their balance sheet today and the seller of the stock last week caught wind of a capital raising. I expect the stock to crash back to fair value if they do go out and try to raise fund and which in my opinion should be around 1p.