Pat McKeough recently replied to a Member of his Inner Circle asking about prospects for a penny stock he owned. SQI Diagnostics has created automated medical testing equipment designed to detect disease faster. The company has yet to sell any of that equipment. It has also lost money every year since operations began. Still even if SQ’s technology proves successful, Pat argues it will face obstacles in getting its product on the market.
Q: Good day. I hold SQI Diagnostics, and I would appreciate your opinion on its future value. It has been a bad performer over the last year. Thank you.
A: SQI Diagnostics Inc. (symbol SQD on Toronto; www.sqidiagnostics.com) is developing automated medical testing equipment that can perform multiple tests on a single specimen, such as a blood sample. These machines aim to speed up disease detection and cut labour costs by 90% compared to traditional testing methods.
SQI’s target customers will mostly consist of medical research labs and drug firms. To help bring its products to market, the company has formed partnerships with medical institutions, including the University of North Carolina at Chapel Hill, the Cleveland Clinic and the Beth Israel Deaconess Medical Center.
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For its 2015 fiscal year, which ended Sept. 30, 2015, SQI’s revenue rose to $443,000 from $119,000 for fiscal 2014. The company hasn’t yet sold any equipment, but it has received some revenue in the form of development funds from potential customers.
Penny stocks: SQI Diagnostics may be forced to issue new shares at depressed prices
SQI’s losses grew to $6.1 million from $5.5 million. Due to more shares outstanding, per-share losses were unchanged at $0.11. (SQI has lost money each year since it began operating in 1999.) SQI spent $3.5 million on research in 2015, up 3.5% from $3.4 million in 2014.
The company ended the year with cash of $1.85 million. In fiscal 2016, it will need to spend an estimated $5.5 million to pay for research and other operations. That will likely force it to keep issuing new shares at today’s depressed prices; the stock is down 56% from its January 2015 high of $0.71. SQI is also a very inactive trader, which can increase its volatility, especially when the overall market is unsettled.
Even if the company’s technology proves successful and cuts testing costs as promised, SQI still faces obstacles, including mustering the selling and marketing resources to convince customers to use its products instead of traditional methods.
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Pat McKeough recently replied to a Member of his Inner Circle asking about prospects for a penny stock he owned. SQI Diagnostics has created automated medical testing equipment designed to detect disease faster. The company has yet to sell any of that equipment. It has also lost money every year since operations began. Still even if SQ’s technology proves successful, Pat argues it will face obstacles in getting its product on the market.
