Let me start by saying that Guardion Health Sciences (NASDAQ:GSHI) is one of the riskiest penny stocks you can buy. The company is a biotech/neutraceutical company that has been trading below $1 for the better part of 18 months.
The company is facing a delisting threat but was given a deadline of March 15 to come into compliance. However, it appears that the stock has the attention of the Reddit crowd. First, in early January, the stock rose sharply on significantly higher trading volume.
At that time, it failed to capture the $1 mark. However, traders took another run at the stock in mid-February. This time, the effort was successful. However GSHI stock has not been able to hold those gains.
There’s nothing wrong with that. And even if the company fails to fall into compliance, it appears they have an equity distribution agreement in place with Maxim. That would seem to take the most immediate concern of bankruptcy off the table.
That may be enough for some investors. It’s not for me. But let’s take a closer look.
Medical Food and Medical Devices
Guardion Health has two primary businesses. They are a manufacturer and distributor of medical foods for ocular health, particularly in the area of macular degeneration. And they sell medical devices through VectorVision, a wholly owned subsidiary. The company also sells “neutraceutical” food products for consumer health.
The company has a good story when it comes to age-related macular degeneration (AMD). This is the leading cause of vision loss in the United States. It’s a progressive disease that affects 14% of White Americans over the age of 80. According to Guardion, “approximately 11 million Americans have some form of AMD”. And that number is expected to double to nearly 22 million by 2050.
With those statistics in mind, finding ways to slow the progression could enhance the quality of life for millions of Americans. And the company’s flagship product, Lumega-Z, contains all three macular carotenoids (lutein, zeaxanthin and meso-zeaxanthin) and other antioxidant and anti-inflammatory ingredients that are considered essential to maintaining retinal health.
The composition of Lumenga-Z contains vision-specific nutritional ingredients because the human body cannot naturally produce carotenoids.
Not a Clear Business Plan
I’m not going to disparage the company’s neutraceutical food sector. Alternative health is controversial, but has its true believers. Chances are, if you have a condition, there’s a “natural” remedy that will make claims to treat it. While many doctors won’t endorse them, they probably will not steer you from them if they help.
The first concern I have is that it doesn’t seem to fit with their other business unit. Medical foods of the kind they offer for treatment of AMD are different from neutraceuticals. So, on paper, it appears that they’re hoping to generate revenue from this business unit to help fund the others.
And that leads to my second problem. The company does not appear to be generating much revenue. In Guardion’s last earnings report, which they delivered $0.25 million in sales. That was down significantly from the $1.19 million they had posted in the previous quarter.
GHSI Stock Is a Risk Without Much Reward
I don’t root for any stock to go bankrupt. And I don’t believe that fate will befall Guardion Health Sciences at this time. But that doesn’t make it a sound investment.
With that in mind, the company is scheduled to report earnings sometime in late March. At that time, there should be much more clarity about the company meeting compliance. And investors will get another look at revenue.
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