Just As I PHOT

There's no denying that the chart of PHOT looks good today. It could be on the verge of a breakout which would be a huge buy indicator. It also has good volume and plenty of investor interest. It's a medical marijuana company which is a hot sector. Unfortunately, it seems that it is a little bit too good to be true, which is what I first thought as soon as I saw the word marijuana paired with OTC. Much of their success should be attributed to hype rather than solid fundamentals (the latter being what you should prefer in a breakout play).

So What's Wrong?

The first question I ask myself when visiting a company's website for the first time is: "Are they selling products or stock?" In other words, is the company profiting from what they claim to specialize in, e.g. medical marijuana accessories, or just from convincing investors that they're a good company worth giving money to.

Below is a screenshot of their company webpage which at first glance is absolutely selling the stock rather than any products. Go look at any company you trust and check out their website. Chances are, you won't even see a ticker symbol on the page. If you do, they're usually hidden in the footer with a link for investors. Growlife on the other hand features everything you need to know about buying the stock rather than real products. It even includes a headline on the front page that predicts the stock will double in share price. That alone would be a big red flag for me.

 Fundamentals

If you're still wondering if you should give them the benefit of the doubt, check the numbers. They aren't pretty. According to their latest 10-Q, the company has less than a quarter-million cash on hand but they have doubled their total liabilities to over three million since last December. Operating losses are growing rather than diminishing over time which doesn't bode well for their future. As of June 30th of this year, they've experienced a net loss of ~2.8 million dollars compared to a loss of ~878,000 that time last year. Not exactly the kind of success story I'd like to buy into.

How Do I Trade It?

Same as anything else! It depends on price action. If that 10 cent level breaks on high volume, it's a buy indicator regardless of how poor the company is. Hype moves stock and there's no reason you shouldn't be profiting from that. That being said, you'll be one of the smart buyers who will know that this company doesn't deserve to be breaking out to new highs. I'm hoping you know enough not to hold onto it if you do buy it.

If you were thinking about shorting it, you've got the right idea but it probably isn't worth it. At 10 cents and solid support at 5 cents, there just isn't enough downside to make the risk worth it. Personally, if the stock fails to break 10 cents I wouldn't pay much more attention to it.