A Perfect Storm Caused the Price Drop…
The price drop was caused by a perfect storm of negative factors. In pre-market trading hours, one or more whales received word of the court decision ahead of most other investors: probably through Barchart and premium terminal services (or boots-on-the-ground observers). If you look at the volume chart, most of the trade volume occurred very early, and the daily trading volume is well over 4x the daily average.
Because there was this big of a move, with most investors unable to figure out what was going on, it created a panic. Four hours later, Seeking Alpha and Reuters subscribers were able to find out about the court decision. Most other investors either had to hear the news through the grapevine rumor mill, or wait until more than halfway through the trading day for a clear explanation, as news updates on other financial platforms slowly trickled in from Tip Ranks, Global Newswire, and follow-up articles from Reuters.
Biotech short sellers continually flock around $Ardelyx (ARDX.US)$ because they can easily manipulate the stock price. They saw the downward momentum and confusion, and wasted no time piling in, spreading FUD across every financial platform and social media message board that they could find in a semi-orchestrated misinformation campaign, which fueled the flames. There was also word of new shares being tendered for sale, as well as recent filings concerning the Chief Development Officer immediately selling a 100% vested stock option of 27,172 shares through his wife 4 days ago.
So what happened today was a convergence of FUD, dilution, insider trading, and a materially adverse event, which coalesced into the perfect storm. The magnitude of the decline in share price is probably overdone, offering new or recent investors a good entry point, as the stock was already undervalued before all of this. Also, the recent reduction of the Fed’s interest rate extends Ardelyx’s financial runway a little bit, as there will be lower interest being charged on their $128,860,000 worth of debt.
In my case, even with this huge drop, the current price is still much higher than my average cost basis across all platforms. As tempting as it is for me to go on a contrarian buying spree, there are other good places to invest money like KKR, MSFT, AMZN, and GOOGL. So I’ll hold all my shares long, but might not add any more just due to what else is currently out there.
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