Low Float in Downstream Energy Company: A Lesson in Supply and Demand
In established industries, low-float stocks can be attractive to investors seeking amplified returns. With a limited number of shares available for trading, even a modest surge in buying pressure can cause the price to jump significantly. While volatility cuts both ways, identifying those with unique business models can cause a company to stand out from competitors vying for investor attention.
Titan NRGInc. (OTCPK: TTNN) is one such company, offering a compelling proposition for investors seeking exposure to the downstream energy sector with a twist: alow-float stock.
Understanding Titan NRG
Titan NRG is an integrated downstream energy company that focuses on the acquisition, development, and operation of businesses related to the transportation, storage, and marketing of refined petroleum products. Their Operations encompass a range of services, including:
- Terminals: Operating a rail storage facility via a long-term lease agreement for transloading refined petroleum products (e.gl, gasoline, diesel, propane) that is being developed into a full-fledge rail terminal
- Transportation: A modern, 100% cloud-powered fleet hauling Liquid Petroleum Gases (LPGs) across the western U.S.
- Consumer Services: Titan NRG’s APE Fuel counts 2,000+customers and manages a network of 1,500+ leased propane tanks
This integrated approach allows Titan NRG to capture value across the downstream energy chain, offering more comprehensive exposure compared to companies solely focused on a single segment. Furthermore, the diversified approach generates capital to expand through multiple verticals,which is what Titan NRG is doing (new markets, rail terminal, moving different materials, etc.).
What Does Low-Float Mean?
Stocks with a small float, also known as low-float stocks,are susceptible to rapid price movements due to the basic principles of supply and demand. Here's why:
- Limited Supply: The "float" refers to the number of shares available for public trading. In a low-float stock, this number is significantly smaller compared to a company with a large and widely held stock. This limited supply creates a scenario where even a small increase in buying pressure can significantly impact the price.
- Amplified Demand: Imagine a small room with only a few chairs.If a few people enter the room wanting a chair, the price (or value) of a chairwill quickly rise due to the limited availability. Similarly, when there's a surge in buying interest for a low-float stock, the limited number of shares available can cause the price to jump rapidly.
- Reduced Liquidity: Liquidity refers to how easily a stock can be bought or sold. Low-float stocks often have lower liquidity, meaning it might be difficult to find someone willing to sell their shares at a particular time. This can further amplify price movements because even a small number of buyers or sellers can significantly affect the price.
- Volatility Magnet: Due to the reasons mentioned above, low-float stocks are inherently more volatile. This can attract day traders and other short-term investors who seek to capitalize on the potential for quick price swings. Their trading activity can further exacerbate the volatility.
Need an analogy? Think of a low-float stock like a rare collector's item with only a few in existence. If there's a sudden surge of interest from collectors, the price can skyrocket because there simply aren't enough items to meet the demand.
Titan’s a Profitable Low-Floater
Amongst other things, one of the key differentiators forTitan NRG is its low float. According to OTC Markets Group, as of April 8,2024, Titan has 110.3 million shares outstanding, yet just 10.5 million in the float. This indicates that a significant portion is likely held by long-term investors or insiders.
While a low-float microcap is an anomaly, profitable is nearly a unicorn. During the final quarter of 2023, Titan shrugged off unseasonably warm weather to post $2.3 million in revenue, $1.04 million in gross profit and $130,624 in net profit. The company ended the quarter with nearly $1.0 million in cash on hand.
Microcap with a Macro Focus
The downstream energy sector plays a vital role in ensuring the efficient and cost-effective delivery of essential fuels that power our transportation systems and industries. As the global economy continues to rely on refined petroleum products, companies like Titan NRG are positioned to benefit from this ongoing demand.
Titan NRG offers a distinct proposition in the microcap space. Their integrated downstream energy model and low-float status create a unique investment opportunity in a large market where consolidation to capture market share is the rule, rather than the exception.