The author of this article has a short position in Ominto Inc OMNT
Anyone who has profited from our previous bearish articles on MGTI, SNES, ECTE and many others (whose stocks are all down significantly despite being in a bull market) should also be wary of Ominto Inc. (OMNT). While the stock can be difficult to borrow, we believe the stock is massively overvalued, has a bad business model (multi-level marketing), engaged in highly questionable transactions that enabled the company to uplist to the Nasdaq (which enabled the CEO to receive significant bonuses) is involved with people who appear to have a criminal past, and the company will likely need to raise additional equity.
Unfortunately, before we were able to complete our write up on the company, Geo Investing published a fine piece which highlighted many of the same issues that concern us about Ominto Inc (OMNT). So, rather than repeat what has already been published, we wanted to add some additional points.
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1) Despite all the red flags at the company, the stock still trades at what we consider to be a crazy valuation of 5x annualized revenue. This seems excessive to us considering the company’s bad underlying business, likely need for additional capital, history of losses and numerous other red flags. The stock is up 100% year to date on very little news.
2) OMNT is a multi-level marketing (MLM) company. MLMs are highly controversial businesses that often fail. For more information on MLMs, see https://en.wikipedia.org/wiki/Multi-level_marketing
3) OMNT recently downgraded its auditor to Morrison Brown Argiz & Farra. We’ve never heard of this firm and we get suspicious when a company switches to an auditing firm like this one.
4) Many OMNT Board of Directors have ties to Utah. While we have nothing against Utah, we do find many frauds in Utah and in Boca Raton (which is where OMNT is based).
OMNT is a highly promotional company. If you want a good laugh and a good data point as to what kind of company OMNT is, watch this video (skip the first 40 seconds) and hear OMNT’s executive claim the company will be “the largest company in the world” in 5-6 years (watch below) . Given all serious red flags at the company, we bet the SEC and/or NASDAQ investigate OMNT before it becomes “the largest company in the world.”