The sudden crash in the oil market last year – a nasty byproduct of geopolitical turmoil, macroeconomic conditions, and fiscal experimentation – brought with it a packaged deal. Not only was the price of black gold drop-kicked precipitously, nearly the entire commodities sector was given an unwanted haircut. As expected, shares of small, publicly traded companies, dubbed micro caps due to their relatively low valuations, suffered the brunt of the damage. In some cases, however, this presents a lucratively unique opportunity for investors willing to take upfront risks for the potential of a huge payout. ZBB Energy Corp (AMEX:ZBB), an energy management system provider catering to commercial businesses, is one such opportunity. The company’s recent introduction of an innovative Zinc bromide battery, which was developed in conjunction with China’s Meineng Energy under a joint partnership, provides an intriguing possibility for massive financial gains. But would the technology be enough considering that ZBB, since its initial public offering, has been one of the worst investments in recent memory?
The Jekyll and Hyde nature of many micro caps that dwell in the lower tiers of the stock market exchange is especially fitting for ZBB. The pros and cons are acutely polarizing; even quantifiable risk analysis models of its equity shares demonstrate a wild mathematical character.
For example, consider ZBB’s 10-week average returns as a basis of its weekly velocity (week-over-week rate of change). In terms of frequency, there have been significantly more instances when investors lost money on the stock, regardless of whether they bought the stock on an uptrend or downtrend. This is demonstrated by the negatively slanted linear trend line on the above chart. The draw, however, is that ZBB has been known to return 50 to 100% profitability margins over a relatively short time frame (10 weeks), which is represented by the wickedly shaped polynomial trend line. As a speculator, the idea here is to weather the small storms (which are far more plentiful) in order to benefit from the huge payout. Unfortunately, too many losses can render intractable injury to one’s portfolio, necessitating some market timing strategies to limit them.
With a time of writing price of 55 cents, ZBB may have hit the “sweet spot.” In August of 2013 – when shares first dropped below the one dollar mark – there was heavy trading between the bulls and bears as they wrestled for control of the market. When trading eventually dropped to a range between 48 and 77 cents, 10-week returns were largely positive in both frequency and magnitude. The verdict? Sub-50 cent moves, at least based on statistical trends, were likely the bottom.
Technical analysis methodologies, particularly the rising support line established from mid-December of last year, lend confirmation to this conclusion. Of course, with micro caps, one of the biggest variables is in the fundamentals. With less stringent regulations, oversight, and accounting standards, ZBB can fall flat on its face without any technical warning. Its close partnership with a Chinese company, a region not known for high quality control standards, is something to weigh. However, risk tolerant investors might believe that the timing is just right for them!