The march of the stock was glorious. A 23% surge on the CVE and almost 30% run-up on the American OTC market. Impressive, isn’t it? The turnover of 5.4M shares realized on Canadian Exchange was likewise impressive. What might have been the reasons for such a rise?
Probably, we could point out three main factors that might have led to the current stock performance. First – steady fundamentals. Second – recently announced positive company news. Third – the price of potash, advancing over the last several months.
As it looks from the financial statements, Encanto has a stable cash position of $9.2M and sufficient working capital, at least in the short-term. This Monday, the corporation released an update of its operational activities, assuring investors everything is going just fine and as planned. In addition to its potash properties, Encanto also owns 10.6M shares in Sundance Energy Inc. who are intent on starting a drill program in exploration for oil and gas assets.
This marks the end of the positive story. A more detailed analysis will reveal us that not everything is so good and so bright as it may seem. There are several negative facts about the company, which could put under serious doubts the strength of the positive factors just mentioned:
* Actually, the financial condition of Encanto is not exactly flourishing. The company is still in the development stage and does not earn revenues. The net loss for 2010 was over $3.67M;
* Nobody can guarantee that the price of potash will continue to progress in the months to come;
* The stock dilution is huge. The average number of outstanding shares jumped by 85% in 2010, compared to 2009.
Traders should keep their eyes wide open on this stock. It is interesting to see whether EPO will be able to climb up to $0.60 again where it was in February. Or, maybe, a new unpleasant fall will start. At present, the shares are traded at $0.295.
