Helios and Matheson (HMNY): Why A Simple Stock Screen is Not Enough

I have had Helios and Matheson (HMNY) on my Watch List for quite some time to look at and finally I have given it a good look. This company came to my attention while searching for low float stocks with little to no debt and a very small market cap. When I discovered that HMNY has only roughly 3 million outstanding shares with a float of only approximately 350,000 shares, 85% owned by insiders, and no debt as I was immediately intrigued. You would be too, right?

Sometimes when you begin the due diligence process for a particular company you just get a bad taste in your mouth. That's exactly what happened when I started researching HMNY.  One of the first things I do once I come across a company that intrigues me is try to hunt down the latest investor presentation on the company's website. The reason I do this is because it immediately tells me a few things about a company, including how in tune with their investors that they are. In the case of HMNY, the investor presentation currently on the website is over 1.5 years old. Additionally, the company has an analyst report posted on the Investor's Resources page and the report is from 2013. 

So, right off the bat I wasn't getting a good feeling about the company. Given the fact that the company is India-based it made it even a bit more difficult to understand what I was looking at. But, given the incredibly low float I wanted to keep digging. So, I went to the "Quarterly Results" page on the website to examine some of the  financials. Not to my surprise, the latest PR that was posted relating to a quarterly release was from August of 2014. Not terribly outdated, but not what I want in a company I invest in nonetheless. In looking at the financials from that report, I was quite surprised and my interest level was certainly high again and perhaps I had found a silver lining.

An excerpt from the 2014 report that got me pretty intrigued: 

Pretty big company with significant revenues and increasing profit! So I wanted to keep digging and learning. So, I looked at the notices that are apparently required in India for the company to file requesting that the governing authority release the information as a press release to the public. Well, while digging through the most recent notices there was discussion by the company of the need to raise capital and reduce overall leverage.

The excerpt below was from one of the most recent "notices":

After reading through the "notice" I immediately told myself there is no need to continue with my due diligence. The information I was uncovering was extremely contradictory at best and that my efforts would be better focused on a company that was easier to understand and NOT in India. 

The moral of this story: Even if you want to really, really like a company based on an initial screen it is so important to peel back as much layers as possible to understand (or in this case not understand!) all you can about a company. While HMNY may be a long-term winner, I am thoroughly confused and part of my investing process is to only invest in companies that I can fully understand. HMNY clearly doesn't fit that important requirement.