Mechanical Technology – Consolidating a Ten-day, 82% Rally

Posted on August 23, 2020 by Tom

A New Name in Crypto Mining & Blockchain
Aug. 18, 2020 Tom Linzmeier, editor Tom’s Blog at LivingOffTheMarket.com

Mechanical Technology (MKTY)* $1.01

MKTY is dropping backwards after an 82% rally in ten days. To our eye it looks like a good entry price between $0.90 and $1.00. It could easily drop lower than $0.90 because of the thin float of about 5.6 million shares. We suggest a dollar cost averaging approach. There is not enough trading volume to be buying and selling for trading purposes unless you are spot on buying the dip and selling the spike rallies. Consider this a healthy, semi-private company, that is hard to sell, until trading volume grows. We do think that will happen. It is in management’s agenda.

Personally, I have traded this stock profitably for more than fifteen years. What is happening at the company in 2020, has the potential to be a game changer. MKTY is a story well worth getting to know in spite of its lack of liquidity. In the old days, when I was a boy, trading the market, we’d call this a company with potential to change your lifestyle – if you own enough of it. Fifty thousand shares should do it. Buy slowly and on weakness, dollar cost averaging into it and be patient. Don’t be afraid of the company. Sell some on rallies – buy more back than you sold on dips.

Fundamentally, this has been a company that is breakeven in earnings at $6.5 million in annual revenue. MKTY can show $2 million in profits (roughly $0.20 per share) at $10 million in annual revenue company. They are debt free and not going out of business. The problem has been a reputation as “a solid company, well-run company – but no growth”. That is changing with MKTY’s entry into Crypto Mining and Blockchain and its partnership with Soluna.

We are more positive than ever on MKTY. Technically we see this as consolidation in stage 2 chart pattern popularized by Stan Weinstein.

  • Their new subsidiary  http://www.EcoChainMining.com is in a very hot market space. Their peer group trades in the $100 million market cap valuation while MKTY trades at a $12 million market cap valuation. MKTY is more real and has potential to vertically integrate from crypto mining to blockchain app development to participating in a 100% alt-energy, data center (partner in Soluna) to host other independent Crypto miners and blockchain app developers. Granted, they don’t own a big part of the data center, but they are invested in it, have Soluna as partner and advisor on MKTY’s own crypto mining activity. You will see more press from EcoChain as we move forward. MKTY wants the publicity and marketing exposure because they wish to do a secondary offering to increase ownership in Soluna (option to invest at MKTY’s choice) , finance its own, crypto mining activities  and to help fund Soluna (Third party cross-over ownership). A secondary offering will be very good for the stock price as a secondary offering is great exposure for the company and creates a vested interest by brokers promoting the shares.
  • In addition, MTI Instruments (100% owned by MKTY) will deliver products in the third and fourth quarter from the largest contract in company history. The next two quarters look very good for both revenue comps with previous quarters and profits. It does bring up concern about MTI Instruments follow-up business in 2021. We hope the Blockchain activity from EcoChain fills that gap.
  • MKTY is debt free – no need for cash other than to invest and develop the EcoChain subsidiary. We don’t see an issue with that as the total shares outstanding is about 11.3 million (very small) and the proceeds from a secondary will be directed into a hot growth industry, Crypto, Blockchain and a Data Center. We estimate a secondary offering of 5 million shares in our comments below.

MKTY Operations Comment:

  • We suggest MKTY is an excellent buy at prices below $1.00.
  • 2020 is expected to be the fourth consecutive year of company profitability
  • Our price goal is $3.00 to $4.00 in six months to one-year timeline.
  • LOTM’s EPS for 2020 is in range of $0.12 to $0.17. We are unsure of the expenses related to growing EcoChain Mining business and how that will impact eps.
  • We believe an 8 to 20 times earnings multiple valuation is realistic. That range is wide we know, 8 X the low EPS is $0.98 and 20 X the high EPS is $3.40. MKTY is an unknown name and has traded between 4 to 6 times earnings for the past few years.
  • MKTY’s Core business is scientific measurement instruments for the aviation and semi-conductor industry.

Why the Higher Target Price than on an EPS basis?

  • We have some fluff in projecting the higher price, this is true. We believe the thin float and “emotional” excitement of “discovery” as a new participant in the Crypto / Blockchain industry, will project the share price upwards.
  • The “logic” for the higher price than $3.00, is based on comps to their peer group.
  • A $50 million valuation on post-secondary share count of 16.5 million share is $3.00
  • A $100 Million valuation on a post-secondary share count of 16.5 million shares is $6.00
  • A $130 million valuation on a post-secondary share count of 16.5 million shares is $7.88

The leading contenders as MKTY/EcoChain’s peer group and their Market Caps are:

RIOT and MARA are the best known in this micro-cap arena – TAALF is just starting to get exposure in the USA (Canadian company) but is sophisticated in this field. We like what we are seeing so far from TAAL.

NOTE: EPS numbers and the potential for a 5 million share secondary offering are LOTM projections and what LOTM thinks is logical activity to grow MKTY’s business. It is impossible to say what management will actually do.

It is not so much what you buy, it is what you do after you buy, that determines your return.
Need to review your Risk Management policy? Professionally Trading since 1976
Contact: Tom @ LivingOffTheMarket.com

* An account related to LOTM holds a position in this security. These Investments are bought and sold constantly.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket.com ZTA Capital Group, Inc.

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