Congratulations to anyone who happened to buy Helios and Matheson Analytics Inc (HMNY) anytime before Friday’s close and yesterday’s close. If you did, you’re now up anywhere between 32% and 1350%, depending on when you actually stepped in. Now get out. This euphoria-driven strength wasn’t built to last, and it probably won’t.
That’s an alarming assessment for those traders who just stepped into HMNY stock today (and there are plenty of people in that group). This is an all-too-familiar story, however, and far more often than not it ends with a spectacular disappointment.
More than that, the implosion chapter of these stories tends to come far sooner than most are expecting.
Translation: Today may be the “as good as it gets” day for Helios and Matheson Analytics shares.
Helios and Who?
For the 99% of investors who had never even heard of Helios and Matheson before last week — when it was sporting a market cap of something on the order of a mere $2 million — the company essentially helps companies turn data into useful information that can be used to make better marketing decisions, create efficiencies, etc.
It’s not something the average consumers would care about, or even know about, but it’s something that most corporations increasingly need to help them stay afloat in a sea of digital data.
It’s not a bad business to be in, but Helios and Matheson Analytics was hardly alone in the market, and it was struggling to compete with much bigger competition.
Solution? Acquire a company that makes a GPS-driven, real-time crime and navigation map applications.
So that’s what Helios and Matheson did. It announced early this week that it was merging with Zone Technologies, the creator of RedZone Maps, which makes the aforementioned solution to help law enforcement agencies find “concentrations of highly reported crime in an area,” and “help navigators obtain optimal cautionary alerts.” Helios believes it can apply its artificial intelligence capabilities to make RedZone Maps even better.
HMNY stock started a quadruple-digit runup on the news.
When the Dust Settles
It’s not a complete mismatch of the two technologies — Helios likely can make RedZone Maps at least measurably better. The questions are, how much better, when will that happen and was it worth the undisclosed price? See, although billed as a merger, the disclosure document Helios and Matheson filed with the SEC noted ” inasmuch as the Merger Consideration is expected to exceed 20% of HMNY’s issued and outstanding common stock.”
Even more alarming is the fact that the same filing said nothing else about the terms of the merger. Considering a near-delisted HMNY needed Zone Technologies a lot more than Zone Technologies needed Helios and Matheson, though, it’s safe to presume Helios made an offer too sweet for privately-held Zone to refuse.
And no matter how one spins the potential of the union, there’s no way anyone will be able to say the pairing has made HMNY stock 1350% more valuable than it was less than a week ago.
In other words, if it sounds too good to be true, it probably isn’t true. Once the majority of this week’s knee-jerk buyers recognize this reality, the buying pressure could deflate in a hurry.
Bottom Line for HMNY
It’s not an entirely uncommon tale: The superficial news is exciting, and the limited float for a stock makes it easy for a little news to do a lot of bullish work. This particular deal raises more questions than it answers, though, not the least of which is the question of a price tag.
Be that as it may, even in the unlikely event the merger will cost Helios and Matheson little more than a song, this is still brand-new territory for the company. Turning subjective data into a useful, objective crime-fighting map is an art as much as it as a science, and it’s an art HMNY hasn’t practiced much.
There’s just more risk than reward in continuing to hold the red hot mover.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.