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MGT Capital Investments Inc.: Don’t Buy the McAfee Madness! (MGT)

MGT stock may look alluring, but its rally can't go on forever

By John Divine, InvestorPlace Assistant Editor

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Editor’s Note: This story has been changed to reflect the fact that McAfee was not involved with his eponymous company when it sold to Intel (despite the insinuation that he was in MGT’s May 9 press release), and that John McAfee is not technically CEO of MGT Capital yet. Also, he does not own D-Vasive.

You rarely, if ever, see a chart like this. MGT Capital Investments Inc. (MGT) stock is up over 40% in intraday trading on Tuesday, more than 1,000% in the last five days, 1,556% in the last month and 1,700% so far in 2016.

MGT Stock: Don’t Buy the McAfee Madness!Languishing in the company of other penny stocks as recently as a week ago, MGT stock traded as low as 15 cents per share at its 52-week low. On Tuesday, shares flirted with $5/share at their peak.

So what changed? Two words: John McAfee. In a surprise move last week, the software security pioneer was suddenly proposed as the new CEO of MGT Capital Investments, a company involved in mobile gaming, social casino and fantasy sports areas.

But frankly, the whole thing is a little shady when you start to take a look at the deal. At the end of the day, buying MGT stock is an extremely high-risk, high-reward play, but with so little insight into what the endgame is here, I’d venture to say that there are better stocks to take fliers on.

MGT Stock: McAfee’s Public Plaything

When McAfee was installed as CEO of MGT on May 9, that wasn’t the only news; MGT also agreed to purchase certain assets from D-Vasive Inc., an anti-spy software firm, for $300,000 cash and 23.8 million restricted shares of MGT stock, or 47% of the company.

But the McAfee madness doesn’t end there. MGT is also renaming itself to John McAfee Global Technologies, Inc. I guess he figures, “If it ain’t broke, don’t fix it.” The MGT press release announcing these moves claimed that McAfee sold his old company, the antivirus software company McAfee, to Intel Corporation (INTC) for $7.6 billion in 2011.

In reality, he had nothing to do with the company at that point and was not involved in its sale to Intel.

In conjunction with these two major announcements, MGT also struck a consulting agreement with Future Tense Secure Systems Inc., a tech incubator founded by none other than John McAfee himself. If you’re starting to wonder just how great these deals will be for MGT stock owners going forward, we’re on the same page.

At the end of 2015, MGT had just $359,000 in cash. $300,000 of that is now gone, in the coffers of McAfee’s D-Vasive. The company posted revenue of just $104,000 last year, which is a pretty meager sum considering the current price of MGT stock values the company at upward of $70 million.

When you add to that the fact that the company isn’t even growing fast — that $104,000 was up just 10% from the $94,000 it sold in 2014 — this becomes a real head-scratcher.

Obviously, the X-factor here is what sort of value John McAfee, and the newly acquired assets of D-Vasive, bring to the table. Since D-Vasive is a private company, we don’t have much insight into that.

It’s pretty overtly clear, though, that the recent hot streak we’ve seen with MGT stock is due to rampant speculation that McAfee can come in, work some magic with his knowledge and connections, and make this company a player or maybe even sell it.

But with pretty much zero insight into how that’s gonna go down, and after a run of epic proportions that is based on nothing of fundamental significance, I’m far more prepared to bet on MGT being a zero than a hero.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at [email protected]

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