Wirestock
Wirestock
Loop Industries (NASDAQ:LOOP) is a company that works on reducing the impact of PET plastic and fiber waste on the environment. LOOP recently announced its Q3 FY23 results, which I will analyze in this report. I think owning LOOP right now can be risky because it looks dangerous financially and technically.
LOOP recently posted its Q3 FY24 results. The revenue for Q3 FY24 was $26 thousand, which was $25 thousand in Q3 FY23. The revenues resulted from the delivery to PET resin customers. Its general and administrative expenses declined by 22.7% in Q3 FY24 compared to Q3 FY23. The decline in professional fees and stock-based compensation expenses were the reasons behind the decline.
LOOP's Investor Relations
Its net loss was $4.2 million in Q3 FY24, which was $1 million in Q3 FY23. The company recorded a gain of $6.7 million in Q3 FY23 related to the disposition of assets. So, excluding this gain, the loss in Q3 FY24 was much lower compared to Q3 FY23. The numbers appear horrible, and if they continue to generate such losses, I don't know for how long they can sustain their business because they aren't producing any revenues. So, I wouldn't be surprised if they go bankrupt in the coming years because they are using the cash to sustain their business, and it is burning quickly. It had cash worth $9.3 million by the end of November 2023, which was $29.5 million by the end of February 2023. So, the cash is burning fast, which is a matter of concern. The company has raised $66 million recently, which they intend to use for the commercialization of their technology. However, I don't have much confidence in the management because the management said that they had found a formula to recycle PET plastic in an economical way. However, even after four years of claiming it, they haven't been able to produce any business; instead, they are just burning cash with extended loss. So trusting them can be a challenge, and if they don't deliver in the coming times, I think the funding might stop. The only way we might see a turnaround is if they execute what they claim.
Trading View
LOOP is trading at $3.5. At one point, the stock was trading at $18, but right now, it is trading at $3.5. Even after falling so much, I think the stock might fall even further. In October 2022, the stock gave a breakdown of $3.51 and formed a new low, and after the breakdown, the stock started to trade around $3. It started consolidating. It seemed like the stock had stopped falling and might recover. But it seems like the stock is gearing up for a new downward journey. I am saying this because the stock gave a fake breakout above $3.51, and it seems like the candle was just to trap new investors, and now the price has started to trade below the $3.51 level. Hence, looking at the price formation, I believe the stock might fall even further. So, I am bearish on LOOP.
The financials of LOOP look horrible, which explains its share price crash. Even after falling so much, I think it can fall even further, and after considering its financials and technical chart, I think a new downward journey is very much possible in the coming times. In addition, its valuation looks absurd. It is trading at a Price / Book [TTM] ratio of 8.80x compared to the sector median of 1.93x. Hence, considering all the factors, I think owning it can be dangerous. Hence, I would advise to avoid it.
Although it looks risky overall, some points might change the company's financial situation. LOOP and Bormioli Pharma recently unveiled a packaging bottle made of PET plastic in Europe, and Bormioli Pharma claims that it has a better safety standard compared to traditional ones. In addition, recently, LOOP got $66 million in funding from Reed Management, and it intends to use it to commercialize its technology in Europe. So, if the company manages to manufacture the product in an economical way, then it can be a game changer for LOOP. So, seeing how the pharma industry reacts to this product will be interesting.
Owning LOOP right now can be risky. It looks quite dangerous financially and technically. Their cash is burning out quickly, and once it's over, I think we might see them going bankrupt because they aren't able to produce any revenues. Hence, I would advise to avoid it for now.