Investing in Dark Corporations

A funny thing happened to me a couple days back.

I was researching one of the most promising little companies I’d ever come across.

And I mean that without any trace of hyperbole. This is, without a doubt, one of the most interesting and prospective technology firms I’ve seen in years.

The technology it specializes in is just now coming into popularity with both private and government organizations, and it is becoming so vital to the modern operations of a number of essential industries that the market for it has doubled in the last two years and is expected to double again in the next three.

Better still, this company specializes in just one application of the technology and, thanks to this focus, has built substantial brand recognition and carved out an impressive niche…

Even more impressive considering its market capitalization is barely $10 million.

So I was excited. I saw great opportunity for both my readers and my own portfolio. It’s a company I’d have no problem recommending to anybody.

But then… Well, then things got a little surreal.

You see, this company, although it trades publicly, didn’t seem to have any quarterly reports published at any point this year.

In fact, its last financials dated back to 2013.

How could this be?

Leave it to the Feds

Doesn’t the SEC have requirements governing the release of financial information via standardized channels?

I couldn’t explain it. Actually, nobody could explain it. Nobody I worked with understood what was happening. My own broker was drawing a blank as to what was up.

This was especially confounding considering these two factors:

Every company I’ve ever examined publishes information. Even if the company is nothing but a shell and its reports consist of nothing but a stack of blank columns and zeros, the information is published.

But, like I said, this company was far from a shell. After all, in its last report, it posted not only revenues but impressive revenues.

And since that last report was published, the company’s been racking up headline after headline in the financial news section.

Just about every month for the last half-year or so, it’s been reporting multiple new clients — some of the highest-profile clients in its chosen industry.

Clearly, this wasn’t some empty shell of a company hiding behind a ticker symbol. It was the real deal, with a revolutionary, highly in-demand new technology with the power to transform our entire health care system.

And yet, as far as the reporting goes, it was like a ghost.

No matter how promising a corporation is, how can I possibly recommend it to my readers without the basic technical info?

Well, after hours of digging, I finally found the answer buried in a year-old thread on some sparsely populated investor forum.

Is This a Healthtech Company or the CIA?

This company had “gone dark.”

If that sounds mysterious, it’s because it is.

Let me explain…

Thanks to an obscure provision in the JOBS Act of 2012, the Securities and Exchange Commission allows companies and financial institutions whose shareholders number below a certain threshold to shed their public reporting obligation.

They can make the information available to shareholders if they want, but they also have the right not to.

This company, it turns out, allows its shareholders to access reports through its own online portal — which requires registration and proof of shareholder status.

The information is not publicly available, however — effectively keeping the investment community completely uninformed as to what’s happening.

In essence, it’s a private company with its shares readily available to you and me via the normal methods of purchase — and once you get those shares, you can get the full story on what the company’s doing.

But not before.

Which leads to the obvious question… Why are they hiding this information?

Well, the most intuitive answer is that they’re hiding something bad — something not favorable to their share value.

In fact, if you Google “companies going dark,” you’ll find a handful of stories of small banks taking advantage of this little-known rule to hide ongoing problems.

If it seems unfair to investors, that’s because it is. The law that allowed this was designed to make it easier for certain companies to do business, but in the end, the lack of transparency, when used to hide weakness, is fishy to say the least.

Not All Secrets Are Bad

However, I don’t think that’s what’s going on here.

As I said, this company has none of the hallmarks of a failing operation and, in fact, seems to be on pace to become a major player in a rapidly emerging new technological market.

So what else could be its motivation?

Well, my only real hypothesis is that management and the board of directors is trying to keep the stock in as few hands as possible.

It could be a first move in an attempt to go private — as many firms do nowadays to avoid some of the pitfalls of being subject to shareholder pressure.

Or it could just be a means of controlling share value to keep the stock from running up — which, given the headlines, is exactly what it would be doing if only that crucial financial information were published.

Whatever the cause of this rare and downright peculiar strategy, one thing is for sure: This is not your typical microcap company.

Indeed, it seems pretty unique, especially as it’s on the verge of growing by as much as an order of magnitude.

Be Patient

Now, you may have noticed I’m withholding the name of this company.

The reason I’m doing this is that due to the unique private/public nature, I simply do not feel comfortable giving even a passive recommendation to more than half a million readers.

I know I say this a lot, but in this case, it cannot be overemphasized: Anybody investing in this stock needs to be the definition of cool-headed.

The opportunities here are certainly great, but it’s the kind of play that could fray the nerves of even a seasoned trader.

Stay tuned, because in the next few weeks, I will most likely be releasing the name.

However, I want to exercise the highest level of care for reasons I already mentioned.

So if you want to be the first to know when I release the information, click here to see if you’re the kind of trader who can handle it.

Fortune favors the bold,

Alex Koyfman

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His flagship service, Microcap Insider, provides market-beating insights into some of the fastest moving, highest profit-potential companies available for public trading on the U.S. and Canadian exchanges. With more than 5 years of track record to back it up, Microcap Insider is the choice for the growth-minded investor. Alex contributes his thoughts and insights regularly to Energy and Capital. To learn more about Alex, click here.