The extreme volatility of microcap stocks was on full display in late April.
Here’s what happened: Ostin Technology Group Co LTD (NASDAQ: OST) held its initial public offering on Wednesday, April 27, and promptly realized an 892% gain as its price surged from the $4 offer price to close at $39.66.
But have you heard the saying – “what a difference a day can make?” Well, in this instance, one day can make quite the difference indeed.
The very next day, April 28, the OST stock dropped from that high of $39.66 to finish at $4.60.
And the slide didn’t stop there. As of May 9, OST was trading at just 2.58 (USD).
So What happened to Cause Such a Big Drop?
Nothing really. Ostin Technology, which makes display modules and polarizers, didn’t experience any fundamental changes from Wednesday to Thursday.
Industry experts say that sometimes with microcap stocks if the price starts to slide the resulting pressure to sell can become intense for stock holders, which can then lead to dramatic plummet like what happened in this case.
One thing the big slide can’t take away from Ostin Technology is that the 892% gain that it experienced is the biggest one-day gain for an IPO this year.
Of course, that may be of little comfort to investors who held on too long and saw all their gains erased.
So What Can Investors do to Avoid Big Drops Like This?
Expert tips include:
- Avoid falling for microcap stories. All penny stocks have that similar story that they could go from pennies to being worth hundreds of dollars per share in no time. So when a big gain happens it can be easy to fall for the hype and then get caught looking when the price drops instead of cashing out the gains.
- Study the company’s financials. In particular, look to see if a company has free cash flow for the recent quarter and/or for the trailing 12 months. This can be a good indication of strength because, now more than ever cash on hand, is vital to business growth and success.
- Always remind yourself that microcap stocks can be extremely volatile and have a plan for what you are going to do if a stock begins to dive. When it comes to microcap stocks hesitation and inaction can often lead to disappointment.
Photo by Jorge Ramirez on Unsplash