Share price as of last Friday's close:

$1.58

Share price now:

$7.10

Change:

349%

Volume:

8.1 million shares, daily average 340,300 shares

Last time this high:

Jan. 4, 1999

52-week high:

$7.30

52-week low:

50 cents

EVEN HELIUM-FILLED BALLOONS

fall back to earth eventually.

Shares of CTI Industries skyrocketed 349% to a nearly seven-year high of $7.10 this week after the company best known for manufacturing balloons introduced a line of vacuum food-storage bags. Ever since the Barrington, Ill.-based company released its rather innocuous press release announcing the new product on Tuesday, the stock's trading volume and price have grown increasingly out of control. On Friday alone the stock rallied 50%.

"Fundamentally, nothing has changed since Tuesday; there is no reason for [the stock] to go to $7.10," says Lon Juricic, president of Streetinsider.com, a news analysis service in Birmingham, Mich., that tracks momentum stocks. "It's momentum guys buying a stock. You have a situation where you have a lot of blogs touting it and a lot of eyeballs following it. We don't give recommendations, but we rate it speculative excess. It doesn't mean it can't go higher, but once the momentum guys lose interest and move elsewhere, the stock will collapse." (Juricic doesn't own shares of CTI Industries; Streetinsider.com doesn't have a business relationship with the company.)

It's not hard to see why momentum traders like CTI. It has just two million shares outstanding, with more than 50% of those owned by insiders. That leaves a public float of about 590,587. On Friday, trading volume was 8.1 million shares, 24 times the typical daily total of 340,300 shares.

"The momentum day traders are ticker spamming CTIB over various Yahoo message boards," says a day trader shorting the stock, who requested anonymity. "Most of these traders don't have the faintest idea about what the company does, but the ticker spammers don't care about fundamentals, just getting in and out of the stock quickly."

That's not to say CTI's business isn't legitimate. The company booked $7.6 million in second-quarter sales, mostly from balloons. CTI makes both the latex and metalicized balloons that are found at card shops, amusement parks and party stores. It also manufactures novelty items as well as printed and laminated films used in the packaging industry.

As for the vacuum storage bags at the heart of the Tuesday press release, the company claims there's a $130 million market out there that it hopes to penetrate. CTI's Simply Smart bags are designed for use with home vacuum sealing machines, which remove air before sealing the bags. This allows food to be stored longer and stay fresher in the freezer, refrigerator or at room temperature.

The biggest selling point of CTI's Simply Smart bags is that they work with all of the major sealing machines on the market. Made in pint, quart and gallon sizes, the Simply Smart bags will be priced at $4.95 a box, or about half that of rival products, according to the company. CTI declined to project sales or name the retailers that carry or plan to carry the line of bags.

"We have no projections for market-share levels," says Stephen Merrick, CTI's chief financial officer. "This was a simple announcement, and then we see this enormous activity in the stock. It's just not justified, and that is unfortunate. We've had a couple of times when this size volume has occurred, sometimes on no news, and that is also difficult and frustrating. We try to be a solid and straightforward company. Our goal is not to spend time getting things done in the stock market, but to run the business successfully and profitably."

The last time SmartMoney.com looked at CTI over a year ago, the company had just posted a profit after signing a deal with Hallmark Cards. The agreement allowed CTI to use all of Hallmark's character licenses on its products. In the first quarter of 2004, Hallmark made up 9% of CTI's total revenues, but the arrangement was terminated by March 31 of this year. Neither CTI nor Hallmark explained why the deal came to an end.

After losing the Hallmark licenses, CTI's second-quarter sales fell 21%, resulting in a net loss of $53,615, or three cents a share, vs. a loss of $135,680, or seven cents, a year earlier. For the first six months of 2005, the company turned a profit of $30,872, or two cents a share, down from year-earlier earnings of $236,219, or 12 cents. As of June 30, CTI had $383,896 in cash, down from $526,470 on Dec. 31. After losing Hallmark, the company clearly needs a new source of income.

"[Simply Smart bags] could be a company-changing event," says Luis Martins, an analyst at Taglich Brothers, a New York brokerage. "But, in the past, they had a company-changing event with Hallmark and CTI couldn't make it work. And at the time that deal was announced there was a similar reaction in the stock. The question is how this new market accepts the product, and how is CTI's manufacturing capacity for the new products?" (Martins doesn't own shares of CTI Industries; Taglich Brothers has a business relationship with the company.)

As the lone analyst covering the stock, Martins rates it a Neutral. "It remains to be seen how the market accepts the product and whether it is able to translate revenues into profits," he says. "Until that happens it's hard to gauge. However, any little change in the bottom line is significant. Each $100,000 in net income comes out to about five cents a share in earnings. This may work out, but judging from the past there is a lot of hard work to be done."

Quote:
"It seems like the continued run-up is based on an erroneous AP story that said the company anticipates $130 million in sales from this new product," says Kevin Kennedy, publisher of Coolcat Report, an online newsletter focused on small-company stocks based in Fresno, Calif. "The company's press release suggests the total market for these products is $130 million." (Kennedy doesn't own shares of CTI Industries; Coolcat Report doesn't have a business relationship with the company.)