We’ve been chronicling the saga of this small cap stock for only a couple of weeks now, but I’ve got to say Spongetech (SPNG) has already impressed the heck out of me. Today we got another layer of good news - South American Trading Company just submitted a huge re-order for the company’s multi-use auto-wash sponge.

I don’t want to blow it out of proportion, but the fact that this company (proverbially and literally) ‘came back for more’ after receiving a smaller order in September provides good evidence of demand for the product.

As it turns out, I’m not the only person who agrees. The president of SA Trading said the sponges had only “scratched the surface” of their potential in that market. Moreover, he put his money where his mouth is. Specifically, he put $2.4 million worth (wholesale) of sponges into his inventory. (Money speaks much louder than words.)

As of our last look, the company had a backlog of $14 million in product, to be delivered over the next twelve months. I’m sure they shipped some between the and now, but I’m guessing this brings the twelve-month backlog up to the $15-$16 million range. Considering the market cap is now around $1.5 million, I feel SPNG is way undervalued….trading about 1/20 of what I think it should be. Compare the P/S ratio to any other company - it’s just crazy.

The other big consideration here has been the likelihood of a lot of short interest. The short-sellers ended up winning the battle we discussed back on December 4th, ultimately stopping us out of our SPNG trade. However, we’ve also heard all the short sellers have been looking to make an exit after the stock started to respond to good news over the last several days. The high-volume churn yesterday may have been them doing just that.

With fewer people interested in keeping it lower now, I think SPNG has the green light to go higher. I’m not diving in just yet though…I want to be sure we don’t get a repeat of December 4th and 5th. But, I really like this stock under 3 cents, especially with sales firing on all cylinders. 

Here’s the press release.

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