David C. Kravitz, president of HOH Water Technology, believes his Newbury Park concern will do for the water-treatment business what Apple did for computers. Judging by the tripling of HOH’s stock price since it went public last year, investors believe him.
But as HOH’s stock has climbed, so have the number of investors who expect it to sink.
HOH, which has been developing a novel water purification system for residential and commercial use since its founding in 1979, has yet to begin full-scale production and sales of the system. That is scheduled for early 1989.
However, HOH recently announced several developments that indicate its manufacturing and financing plans are proceeding, which apparently has been enough to persuade some investors to buy the shares now before HOH becomes better known on Wall Street.
HOH plans to start building its water systems at a new, $2.5-million plant in Puerto Rico that is being financed partly by Van Dorn Co. of Cleveland. Van Dorn will make the plastic injection molding machines that will provide parts for HOH, whose residential water purification systems will cost more than $4,000.
HOH went public in June, 1987, offering units, consisting of three common shares of stock and three warrants per unit, at $6 apiece. (A warrant gives its holder the right to buy a certain number of additional common shares at a certain price within a specified time.)
After the stock market’s crash a year ago, the units tumbled to $1.75 by December. But they have soared since. By June they hit $10.75 per unit, and they were at $22 in over-the-counter trading Monday. (The common stock closed at $4.34 a share.)
Trading in the units also has been unusually heavy in recent days. Last Thursday, the units surged $3.375 to $23.625 apiece on a volume of 17,125 units, more than three times the units’ average daily volume of 4,700 during August.
Who is doing all the buying? Kravitz said he is unsure whether HOH has attracted the interest of institutional investors, such as the mutual funds and insurance companies that dominate the stock market.
‘Just the Beginning’
But Kravitz professes not to be surprised by HOH’s giddy climb. “I think it’s just the beginning,” he said. He pointed to successful start-ups such as Apple and Genentech, now a well-known biotechnology company, and said their stocks jumped sharply before their products reached widespread markets.
“People knew that when it hit, the potential was so great that it was going to be worth the investment,” he said. “We have a lot of people drawing that kind of parallel with HOH.”
“Apple took the mainframe computer and miniaturized it and opened up new markets. We’re doing the same thing for water.”
Maybe so, but as HOH’s stock has kept climbing, so has the number of investors who expect the shares to take a dive.
HOH is increasingly being sold short, that is, sold by investors who borrowed HOH shares and then sold them on the assumption the price will drop. The investor then hopes to buy back the shares for a lower price, return them to the lender and pocket the difference in price.
The number of shares that have been borrowed for short sales but not yet repurchased is known as “short interest,” and short interest in HOH’s common stock more than quadrupled to 45,875 shares as of mid-September from 10,980 a month earlier.