Maybe it's only a temporary attempt to rally as we are at the limit of a major support level (the 50 day MA) but the stock price rally of Longwei Petroleum Investment Hold Ltd (OTCBB: LPIH, LPIH message board or LPIH.OB) has surely surprised investors, especially during the generally weak Tuesday's market.
The rundown that occurred over the past couple weeks originally seemed like a correction but recently was somewhat strengthened by the announcement of company's fund raising activity which involved stock issuance.
Although there was no direct share dilution, the issuance of 14.8 million worth of convertible shares cannot go through unnoticed. With the company's market cap of just 145.27 million that makes up over 9% of its value. Although this is just potential dilution, such an amount is still rather extreme.
On the other hand the long term benefits should offset this temporary drawback. The funding will allow complete the construction and purchasing equipment for their Gujiao facility. This facility goes through the company will have the storage for 70 thousand cubic tons of fuel oil and a railway connection to the depot.
Operating as diesel and gasoline distributors the storage capacity is one of the key aspects for the successful business of Longwei so the decision to expand seem like something that will aid their business in the long run. However the material improvements of this expansion are yet to be witnessed.
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