Every now and then, I’m asked to write about a stock that I’m a bit unfamiliar with. That’s the case with Remark (NASDAQ:MARK). At its core, Remark is an artificial intelligence (AI) company. But is that enough to justify the 220% growth in MARK stock this year?
Based on the company’s earnings report, that’s a hard question to answer. Earnings came in roughly as expected. The company reported an earnings per share loss of 7 cents per versus analysts’ expectations for a loss of 6 cents.
It did, however, generate more revenue than analysts expected. That was due in large part to the company’s thermal imaging and scanning equipment that is helping businesses combat the spread of the novel coronavirus.
Right Product at the Right Time?
I have to admit that learning about the company’s product was exciting. We are in a phase where our ability to live with the novel coronavirus is the new reality. And that makes the capabilities of Remark’s core product very attractive. Larry Ramer described the products in detail in a recent InvestorPlace article:
According to the company, its products not only monitor body temperatures like traditional thermal devices, but also automatically check whether everyone in a location is wearing required personal protective equipment, such as masks, and practicing proper social distancing. In addition, the system automatically counts the number of people in a building.
However, as investors we have to be careful not to get ahead of ourselves. MARK stock is still a penny stock. And while that is not a reason to avoid any stock, it is a reason to proceed with caution. Let’s take a closer look at that earnings report.
The Stock is About to Be Devalued
Remark intends to increase authorized shares from 100 million to 300 million. Although Chairman and CEO Kai-Shing Tao remarked that it had taken the company over 10 years to hit the current limit and he said the company did not anticipate hitting the new cap for a long time, “if ever.”
Tao’s comments made it clear that he had potential growth through acquisition on his mind. However, one thing that concerned me was that Tao remarked the company planned to use the shares “on a much smaller basis” as part of its employee compensation packages.
While this is not completely unheard of, it’s a bit concerning when you consider that the stock was trading for less than $1 even before the novel coronavirus pandemic. It reminds me a bit of a problem that Nio (NYSE:NIO) was having when it was encouraging employees to take restricted stock units in lieu of cash bonuses.
Am I suggesting the company is having cash problems? No. But InvestorPlace colleague Mark Hake raised more than a few questions about Remark’s finances in a recent article.
What If the New Normal Actually Becomes Normal?
Of course, the optimal situation for MARK stock is that the measures we are taking in the United States become the actual normal. And I suppose that is likely to happen in airports, hotels, and other large gathering areas that will find it necessary to recoup the costs of the significant investments.
And of course, the company has the potential to capture a large addressable market in China where a “mask culture” is the normal.
But that’s not the scenario that many Americans are envisioning. Most of us (I would hope) are rooting for an effective vaccine to be developed that will allow us to move on with our lives and put the new normal on the shelf. Which brings me to a bigger question about the stock.
What Happens to MARK Stock After the Pandemic Ends?
Thermal scanners are becoming essential to businesses as they open their doors. But what does an elevated temperature mean? That’s the object of some debate. A thermal scanner can tell you what, it can’t distinguish between a fever or simply someone who just got out of the sun, or perhaps just drank some hot coffee.
But what really gets me wondering is what happens after the pandemic ends? That may sound optimistic. I’m writing this as cases continue to go up (albeit many cases may be asymptomatic, which would mean the absence of a fever).
So back to the question of what happens when the nation has a vaccine? InvestorPlace’s Josh Enomoto goes into more detail on this question but suffice it to say, this could all end badly for the company.
Thermal scanning is undoubtedly being required as a workplace safety issue. But if a vaccine exists, will a thermal scanner be seen as an invasion of privacy? Parents may be willing to have their children scanned to go back to school before a vaccine. But will they offer their consent to have their children scanned every day or multiple times a day after they’ve been vaccinated?
There are a lot of questions and it seems to me that Remark has a limited window in which to make this future a reality. I’ll pass on MARK stock until that future becomes clearer than a thermal scan.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.