After months of struggling to escape from the all-time low price, this week Bonanza Oil&Gas Inc.(OTC:BGOI) stock was finally heading in the right direction. Wednesday session closed at $0.0021, which is roughly a 60% increase just for the day, or a total of 400% since the beginning of the year. Worth-mentioning is also the volume of traded shares, steadily increasing over the last few days, reaching more than 270 million traded shares on Wednesday. This is intense activity, surpassed only once during the trading madness of March 1st last year. Yesterday, though it seemed that the hype has left as declines were noticed in terms of price and volume.
Now, as mentioned, the cause for the investor interest recently are mostly newsletter promotions, mentioning Bonanza as a potential short-term investment. And it seems that the window of opportunity is now over, unless this time Bonanza breaks the trend its stock has followed during the last few years.
On one hand, there is a steady drop from $1.5 per share in 2008 to $0.0018 in yesterday session. On a smaller scale, high volatility is what determines the development of the stock price. Due to promotions, company announcements or other factors pushing for moves on the market, there have been sharp increases in price on a regular basis, followed by even sharper declines after the initial trading frenzy was over. This is why it is mainly skilled traders that make their money by dealing with the stock of Bonanza.
The reason why this volatility and general decline exists is simple – Bonanza Oil&Gas offers no incentive for long-term investors to buy its stock, especially in terms of balance sheet. For example, according to the last 10-Q report the net lost for the first two quarters of 2010 is $7.8 million, more than six times than in 2009. With crude oil sales of $142 thousand for the same period and total accumulated deficit of $23.7 million, it is no wonder why the stock price is constantly on the way down.
Bonanza has negative cash flows since inception, yet many companies manage to overcome that over time with smart management decisions and long- and short-term development strategies. Many investors had obviously shared this thought when they bought the stock in the recent years. What they actually got in return though, was stock dilution, which is why the shares bought in 2008 now cost the staggering 80 thousand times less than what they used to.
