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Easton Pharmaceuticals Inc (OTCMKTS:EAPH) Has Further To Run On Fresh Deal

Easton Pharmaceuticals Inc (OTCMKTS:EAPH) Has Further To Run On Fresh Deal
Written by
Chris Sandburg
Published on
January 25, 2017
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Easton Pharmaceuticals Inc (OTCMKTS:EAPH) is one that we have watched pretty closely over the last six months, and for good reason. The company spent the summer of 2016 trading in the low double zeros. It started to pick up strength mid-October, and – during the subsequent three months – has since run up to recent highs of $0.04 a share. That is a more than 1200% increase across the period. Easton's PPS has just corrected to trade a penny or so off the highs, and currently sits at $0.03 a share, but remains 900% up on its mid-2016 pricing.A number of factors have contributed to the run, and that is what makes the company so interesting. Growth hasn't come on the back of just one catalyst, or on markets relying upon one product or deal materializing, but instead, a diverse range of growth factors, each of which have the potential to inject upside momentum into the company's market capitalization on their own.The latest announcement, and the focus of this discussion, is another example of one such catalyst. On January 23, Easton signed a letter of intent (LOI) to acquire a company called iBliss. As yet, terms have neither been finalized nor made public, and as such, we don't really know the implications of the deal from a balance sheet perspective for Easton. We do, however, have some degree of insight into what impact the acquisition (assuming it closes) will have on Easton's topline throughout 2017.Before we get in to the numbers, let's quickly introduce iBliss. The company is a vaporizer and e-liquids manufacturer based out of Toronto, Ontario, Canada. It's a pretty young entity, having just completed its first three years of reportable sales, but as far as growth is concerned, it's age doesn't reflect its achievement. Sales, which include products retailed both domestically in Canada and internationally, to regions including North America (US), Europe, Russia and the Middle East, currently total "several millions of dollars", and are generated at a margin of more than 40%. In retail, 40% is massive, and while this industry is still relatively nascent from a long-term perspective, iBliss' ability to command 40% on its retail items demonstrates a degree of long-term potential.So what does this mean for Easton?Well as part of the recent press release, the company not only outlined sales to date (which it did so pretty vaguely, with the several millions comment, but that's insight nonetheless) Easton forecast that iBliss was on track to generate in excess of $15 million revenue. Neither entity set up any sort of specific timeframe within which we can expect to see these $15 million in sales hit the balance sheet, but when considered against current numbers (which are practically nonexistent) it hints at some degree of upside potential near-term.This, of course, is just one area of growth, and we are looking for it to compound the other areas (ones which we have focused on the past) to drive upside momentum in this stock.What is next?Perhaps most importantly, we are watching closely for this deal to close. As yet, it is only an LOI, and we've seen numerous examples (even just across the last 12 months) where these sorts of announcements have taken quarters if not years to materialize. From the rhetoric, however, it seems as though both entities are keen to get this one closed off pretty quickly, so that is our next upside catalyst. Beyond that, and shifting away from the latest development, we're watching for any insight into the Latin American product portfolio, and specifically, insight into the numbers that this portfolio is generating, as news that could initiate a revaluation.As a note on risk, chances are that this latest acquisition (we'll know whether this is true when details hit press) is going to involve some degree of dilutive equity issue. That's not going to be great for shareholders with an early stage exposure, but given the upside of the deal, this risk is mitigated somewhat.We will be updating our subscribers as soon as we know more. For the latest updates on EAPH, sign up below!Disclosure: We have no position in EAPH and have not been compensated for this article.

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