Shares in CloudTag Inc(LON: CTAG) are rising once again today, extending the company's gains of the past few days. At time of writing, shares in it are up an impressive 28% on the day and 141% since the beginning of the week.
The past few months have been an uncertain time for shareholders of CloudTag. At the beginning of September shares in the company essentially doubled overnight before going on to hit 22.3p, the highest level since the company's IPO back in 2013. However, during October and November, these gains slowly evaporated and the shares fell to a low of 6.1p before embarking on their current rally.
The big question is, does the rally have more substance this time around or will shares in CloudTag crash over the next few months, repeating September's folly?
What's behind the rally?
The September rally in CloudTag's shares was driven by the company's decision to raise £500,000 through the issue of 4.4m shares to fund the development of its personal well-being monitoring devices. The September fund raise took the total value of cash raised by the company since April of this year to £3m.
At the beginning of this week, CloudTag announced that it expects to receive the first manufactured stock of its wearable device later this month. Speculation on social media forced the company to make this announcement ahead of time, but the premature release doesn't appear to have done any damage to CloudTag's share price. Along with the product announcement, the company added that it's in early-stage discussions with a further potential UK distributor as well as an online retailer. The group already has an agreement with a leading North American distributor, CITIES Market Studios Group, which will sell and market its products in the US and Canada to its largest regular retail partners, including big names such as Best Buy, Walmart, Target and Amazon.
Highly speculative bet
Despite its distribution agreements, at this point, CloudTag is a highly speculative bet. The group has no revenue, has generated non-stop losses since inception and is still relying on shareholders to fund its day-to-day operations. It will take some time for the group to get its device into stores and the customers to buy in such volumes to justify the company's current market capitalisation of over £50m.
Then there's the state of the wearables market to consider. Sales of the much touted Apple watch fell 71% during the third quarter of 2016 while aggregate worldwide sales growth of the top five wearable device vendors slowed to 3.1% overall for the period. Until CloudTag reveals its new product, it's not clear if the group can compete with already established players in the market such as Fitbit and Samsung. What's more, until sales take off the group's funding issues are likely to remain.
So overall, the market may have become highly excited about CloudTag's prospects and potential this week, but the company has a long way to go before it can be called an unmissable growth opportunity. For the time being, it might be better to step back and watch the company's progress from the sidelines.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.