Assessing AeroClean’s Odds After its Sudden Crash

AeroClean Technologies (NASDAQ:AERC) is an interior space air purification technology company. The company is in the process of ramping up commercial sales of its air purification units which neutralize coronavirus and other airborne pathogens. The company completed its initial public offering (IPO) in November, and AERC stock initially soared.

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The IPO went off at just right the time. AeroClean shares began to trade just as the omicron variant was starting to make itself known throughout the globe. Investors braced themselves for another potential sell-off in travel and economic reopening stocks, just as we saw with the delta variant. In that environment, a company with an air purifier that could knock out Covid-19; that sounded like a good portfolio hedge.

Unfortunately, the excitement in AERC stock arguably reached untenable levels. On November 29, AeroClean shares topped $100 each, marking a quick 10x run-up from their initial offering price. The next day, the stock dropped by around 75%. And AeroClean has continued to sink even after that precipitous decline before starting to bounce on Monday. What went wrong, and does AeroClean have a shot of making a comeback?

A Small IPO

AERC stock was able to have this sort of wild ride because of the tiny size of its IPO. The company sold 2,500,000 shares of AERC stock at $10 per share. That’s only a $25 million raise, which is tiny by IPO standards. A normal IPO would raise at least several multiples of that sum. Since so few shares were sold to the public, this made it easy for traders to buy up most of the float and send the stock to the stratosphere, albeit only temporarily.

There were several other points of interest. For one, this was a Regulation A+ IPO. These are often deemed mini-IPOs since they tend to raise smaller amounts of money and are subject to less disclosure and reporting requirements than a traditional IPO. This allowed AERC stock to start trading without receiving the same sort of attention and scrutiny that we’d generally see in a larger deal.

It’s important to note that the underwriters on this IPO were not household names. Specifically, the underwriters were The Benchmark Company, LLC, HCFP/Capital Markets LLC and Valuable Capital Limited. There’s nothing inherently wrong with a deal led by small backers. However, there’s likely to be less institutional support for this sort of deal than something led by a JPMorgan or Goldman Sachs caliber of underwriting team.

Limited Operating History

If AeroClean were already a large well-known brand, it would be perfectly positioned to deal with omicron. Unfortunately, that isn’t the case. Rather, as the company’s disclosure statement informed potential investors, the company only began to generate revenues in July 2021 and as of yet doesn’t have any reported revenues in its most recent operating results.

In other words, sales just started this summer. To put numbers on that, AeroClean sold 21 of its Pūrgo units in July, 65 in August, and 81 in September, respectively. That’s a solid trend to be certain. However, the absolute number is still very low. These are not a particularly high ticket item, and as such, AeroClean will need a much larger sales volume to generate significant profits.

To that end, AeroClean thinks that its manufacturing partner will be able to produce 2,000 or more units monthly by the end of 2022. Along those lines, AeroClean stated that it believes it has roughly $20 million of sales in the pipeline for 2022, which would be a significant enough number to start backing up the current value of AERC stock. Do take note that the $20 million of revenues figure is not fixed, however, and that AeroClean: “does not have firm commitments for such amount and cannot guarantee that orders for this amount will be received.”

AeroClean has already sold some units, and has a rising trend of sales since its initial launch. That already puts it ahead of some recent electric vehicle (EV) firms that went public with little more than a prototype. AeroClean has a working product and some initial positive signs. There’s still a long way to determining the broad commercial appeal of the product, however.

AERC Stock Verdict

It’s possible that AeroClean will be the next big thing in the air filtration industry. Sometimes, tech companies seeking to disrupt a staid industry such as this one have more success than start-ups in more competitive fields. It seems as though AeroClean is starting to ramp up production of its units now, and it might just take off. Omicron could give the firm a big boost, as well.

That said, traders drawn to AERC stock simply due to its recent volatility should be careful. The stock skyrocketed due to the factors described above around its IPO.

This was a tiny under-the-radar deal with only a little bit of stock available to trade. This made it easy for social media and momentum traders to bid AeroClean up to an unrealistically high valuation. Once the hype started to fade, however, all the momentum rapidly swung in the other direction, resulting in the stock losing the majority of its apparent value in a single day.

The truth is, this stock IPOed at $10 for a reason. There’s little reason to think that AERC stock was worth anything close to $100 per share. Investors considering the stock today should expect more gradual moves as the business progresses; the initial spike after the IPO was not grounded in any fundamental reality.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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