Don’t Chase American Virtual Cloud Technologies Higher

Key Points

• American Virtual Cloud Technologies announced a surprise reverse stock split. 
• The company also announced major C-Suite changes that point to a transition for the company. 
• The stock may be at a bottom but investors should remain cautious. 

American Virtual Cloud Technologies (NASDAQ: AVCT) is a pure play on cloud-based communications and is well-positioned in its field. The company has several strategic partnerships with big names like AT&T (NYSE: T), IBM NYSE: IBM, and Etisalat that are helping to support the business but it may not be a stock you want to buy. There are changes afoot within the company that speak to volatility and uncertainty if nothing else and there are more reasons than one to shy away, not to mention many other stocks that are even better positioned to capitalize on the same market. 

American Virtual Cloud Technologies Is In Transition 

American Virtual Cloud Technologies is well-positioned within its market but it is having a hard time making profits. The company continues to lose money and has relied heavily on capital raises to sustain operations. The pandemic was a boost that quickly faded and now it looks like there will be some profound changes. The company announced a major C-suite shake-up in August that included a new CEO, a chief of staff (temporary), a CFO, a CAO, and a new chairman of the board. The new chairman is, coincidentally, Larry Mock who has been chairman of this company before. Mr. Tessler was chairman for less than a year. Outgoing CEO Darrell Mays will remain as executive vice chairman. 

Along with the C-suite changes the company announced a strategic review that could include selling the business or selected assets. The company hired Northland Capital Markets to assist with the review but, whatever the outcome, investors should not hold their breath waiting for a big payday. 

Is Cloud-Based Communication Worth Investing In? 

The cloud-based communication industry is a growing concern and one that is investable if in the right places. The industry is expected to grow from roughly $5 billion in 2022 to over $22 billion by 2028 which is an impressive pace. The ease of use and accessibility are among the many reasons why but there are headwinds as well and security is the #1. Cloud-based communications aren’t as safe as more traditional methods and that is keeping the bulk of mainstream users at bay. 

Players like American Virtual Cloud Technologies may prove profitable over time but it is more likely they will be bought out or outcompeted by other, larger entities with more reach and deeper penetration of existing markets. Names like AT&T stand out so, if the company goes on the auction block, it may be a bidder. Others, like Salesforce.com (NASDAQ: CRM) or even Zoom Video Communications (NASDAQ: ZM), may be interested as well and we already know these names to be winners when it comes to connecting people together via the Internet. 

The Technical Outlook: AVCT Might Be At Rock Bottom 

Shares of AVCT stock recently shot up more than 700% but don’t read too much into that move. The reason for skyrocketing share value is a surprise 1-for-15 reverse stock split that is most likely intended to keep the share price high enough to satisfy NASDAQ compliance rules. The price of the shares is up but the value of the company is the same. Other than that, there really aren’t too many reasons to buy this penny stock, if you are looking for winning penny stocks Marketbeat.com’s penny stock screener is a good place to look.  So, shares of AVCT may be at the bottom but I’d like to see some more confirmation of that in the price action and the results. Until then, this company looks headed for either the auction block or the chopping block.