TRCH Stock Price Down 12% – Good time to Buy TRCH stock?

After a furious retail-led rally that started back on 14 June, the price of TRCH is sliding almost 12% this morning as comment volume about the stock on the popular Reddit messaging board WallStreetBets has faded today.

Up until yesterday, the price of TRCH accumulated a 168% gain with this junior oil & gas stock surging from $3.12 per share on 11 June to as much as $10.88 at some point yesterday, to then settle slightly lower at $9.92 per share.

According to data from Swaggy Stocks, a website that tracks momentum in meme stocks as indicated by comment volume and ticker sentiment within the WallStreetBets forum, Torchlight’s ticker symbol TRCH experienced a surge in comment volume yesterday, although posts made mentioning the ticker only accounted for 1.2% of the forum’s total posts.

That slight presence seems to have been more than enough to pump the price as much as 58%, with the total market capitalization of the firm landing at $912.7 million per share.

Meanwhile, the company announced yesterday that it would expand the amount of the stock offering it has been planning for a while, with the management team now seeking to raise as much as $250 million through an at-the-market offering, up from a previous target of $100 million it had set forth on 16 June.

Is this temporary downtick providing an opportunity for late buyers to jump on a Reddit favorite at a lower price? The following article takes a closer look at the stock’s fundamentals and technical setup to see if there are merits to consider this temporary slide as a potential buying opportunity.

Torchlight Energy Resources (TRCH) stock – technical analysis

From a technical perspective, the price of TRCH may have reached its short-term peak already after yesterday’s insane surge. There are two worrying bearish gaps that could be filled at any given point and yesterday’s volumes seem to show that the uptrend may have already reached the exhaustion stage.

However, since the stock’s price action is mostly driven by comment volume and ticker sentiment from within the WSB forum, one can hardly establish a plausible technical path for this stock without accounting for the “surprise” factor that the influence of these coordinated traders present.

For now, the outlook for the stock is bearish based on an unjustified valuation for two companies whose combined fundamentals are worth only a tiny fraction of their stock market valuations while the technical data suggests exhaustion in the latest uptrend.

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Torchlight Energy Resources (TRCH) stock – fundamental analysis

Torchlight Energy is about to complete its merger with a company called Metamaterial Inc., with the completion of the business combination scheduled to take place on 30 June this year.

The deal would result in Metamaterial shareholders owning as much as 75% of the newly-formed entity while Torchlight shareholders will receive the remaining 25% of the corporation.

As part of this agreement, Torchlight had to raise capital via stock offerings to either convert or pay its debts in full prior to the completion of the deal. The rally that started back in December has allowed the company to raise most, if not all, of the capital it has needed to achieve this goal.

Meanwhile, Torchlight’s shareholders are entitled to receive a special dividend payment in the form of one Series A preferred stock for every common stock they hold. The owners of this issue will be entitled to receive, on a pro-rata basis, the proceeds from the sale of the firm’s oil and gas assets.

According to a few estimates, Torchlight’s oil & gas assets, which include the Permian Basin Hazel project and the Orogrande Basin project, could produce a special dividend of around $1 per preferred share to those who owned a common stock of Torchlight by the end of 24 June.

At a price of $9 per share this morning, that dividend accounts for only 11% of the value of the stock if it materializes at that expected rate.

Meanwhile, Torchlight stockholders will be entitled to receive 25% of the newly-formed entity after the combination with Metamaterials is completed.

By the end of the first quarter of 2021, Metamaterials Inc. had total assets of USD 24.23 million and long-term debt of around USD 4.9 million. Meanwhile, the firm generated USD 1.2 million in revenue last year and losses of  USD 15.77 million resulting from listing expenses, finance costs, consulting and professional fees, and other non-core business expenditures. However, the company has a market capitalization of USD 769 million at the moment.

The valuation of these two companies seems severely inflated and the management team appears to be more focused on raising capital instead of improving the business’ performance. Investing in the stock at these prices entitles shareholders to nearly no tangible value as the combined assets of the two companies are worth only a tiny fraction of their stock market valuation while earning-generation capacity is inexistent.

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