The BIG DIP!

As metioned on the previous post, here is my analysis for our company's stock:

As what my instructor told me, lets try to discover the story of this stock before we try to see where it is going.

This stock is highly illiquid as I have observed that there are days when there were zero trades.

Obviously this stock did not have a grand start as it slid way below IPO price from 0.20 down to 0.13 last Aug 2005, the only consolation here is that it went down with low volume.

Come Sept it did make a strong come back as it went up to the 0.20 price in just a few days and went as far as 0.245 with strong volume. I remembered that Sept was the time when the company posted its 12% increase in profits.

But by mid Sept, some of the investors had already started cashing in on the profit as it again slowly went below 0.20 and settled for a long time at the 0.17 level. Notice that volume was not that significant, which means most of the holders are still waiting for it to bounce back. Perhaps they are expecting the stock to rise come Dec and January. Most stocks usually bounce up a significant amount during those days.

Unfortunately instead of bouncing up for the holidays, it dived to 0.15 level and made a big big gap down to 0.10-0.12 level. This was actually a big shock for me and ofcourse probably a lot of stock holders were left out during the gap down. In just a day, the stockprice went nearly 50% below IPO price. My colleague was just scratching his head at the current situation.

Ofcourse the big question was why did it nose dived ? What was happening with this stock? In a bid to help my colleague understand what happened to the stock, I searched SGX for some published disclosures. And true enough, there was a profit warning for half the year ending Dec 31, 2005. The disclosure was posted Dec 16, 2005 in the SGX website. The profit warning was all about our company not achieving a profit for the same term year over year.

what was very surprising, is that the stock started to drop convincingly on Dec 12, but the announcement was released on Dec 16. The sell down starting Dec 12-16 was accompanied by considerable volume trades. Which could mean that even before the announcement was published, some stock holders were already aware of it and started to sell ahead of the others.

The announcement, compounded with the date it was released (friday 6pm) worsened the situation. Panick may have set in on current holders that prompted them to sell down come monday.
The volume trade on monday's opening was high, but started to decline on the next days. Which means a considerable number of stock holders were able to get out on monday, but a lot were still left holding on to the stock. Probably they were not able to react immeaditely as the gap down probably prompted a shock to the holders.....and ofcourse common market psychology may have set in that the holders would rather hold on to the stock tight rather than sell, on hopes that it could still come back to a level where they could call it even.

On the next post, I will try to analyse where the stock may go. The stock's story is not that all bad news, will try to tell you some good news on the next post.