EarthShell Shares Seesaw on Cup Speculation
Shares of EarthShell Corp. hit a 52-week high and then plunged by nearly a third Wednesday as investors attempted to sort out how close the Santa Barbara-based company is to seeing its tests of biodegradable fast-food containers turn into major sales contracts.
The company’s stock price rose to $5.46 before ending the day at $4.38, down 30 cents on Nasdaq, after a company announcement that it would start testing disposable coffee cups made from its limestone and potato starch material. Shares hit a low of $3.75 during the trading session.
EarthShell said the test would start with “a regional restaurant chain” in the Western U.S. over the next 60 days, a move that would let the company attempt to break into the nation’s $1-billion hot-cup market.
But like the other announcements that have helped drive EarthShell’s stock price up 242% this year, the company provided few details. Besides saying it would start the test, it declined to release the name of the restaurant chain.
Last month, EarthShell said McDonald’s Corp. had approved the company’s latest design for a hinged-lid Big Mac container. Though it would represent a huge market for EarthShell if the world’s largest burger chain adopted the container, McDonald’s refused to confirm EarthShell’s announcement. The container is undergoing a test at McDonald’s restaurants in Chicago.
EarthShell said in a Securities and Exchange Commission filing that it has spent nearly $200 million developing the Big Mac container.
By comparison, Corroc International, the Hamilton, Ohio, company that developed the current corrugated-paper Big Mac container, spent several hundred thousand dollars on the product that sells for about 3 cents to 5 cents each.
EarthShell’s shares have risen even though the company has yet to post any revenue or make a profit through its license agreement with the companies that will manufacture the biodegradable containers.
“The stock makes me nervous because all of the penny stock promoters are really pitching it,” said Steve Olson, a private investor who has been following EarthShell. “These guys almost never talk about a Nasdaq stock like this.”
More than 6 million EarthShell shares traded hands Wednesday, about 12 times the stock’s average daily trading volume.
The company said its customers have asked it not to release more details about the status of their business ventures. The cup test will start with a restaurant chain, but EarthShell also plans to work with a coffee company on the East Coast, said Simon Hodson, EarthShell’s chief executive.
He declined to talk about the gyration’s in EarthShell’s shares, saying only that he believes the price is “only a fraction of where it should be.”
The shares are well off their initial public offering price in March 1998 of $21. The IPO raised $206 million.
