Are You Sure That's The Right Company?
What a week! I have to say, I don’t want to blame this all on the Kansas City Chiefs, but they certainly didn’t help matters.
As noted in yesterday’s Stock of the Month report, we have actually had two stocks that have done very well throughout this whole coronavirus outbreak. One of them, Teladoc, is providing telemedicine services. This makes perfect sense to me. Admittedly, when we first recommended Teladoc about 3 years ago, the concept of telemedicine as a tool in fighting a pandemic didn’t really occur to me. However, it makes perfect sense now. Keeping sick people out of hospitals and doctors’ offices is a great way to contain a virus spreading, particularly when many of the people affected will likely need little to no medical treatment.
Another stock that is up around 50% since the outbreak was made public is Zoom Video Communications, which, if you didn’t know, is the teleconferencing tool of choice for thousands of businesses around the world. I suppose plenty of people are being asked to work from home right now, so once again, this makes sense. Does it make 50% returns in two months’ sense? Probably not, but I do see the basic logic.
One stock that got a very unexpected boost that absolutely does not make sense is another, totally unrelated company called Zoom Technologies. This company trades over-the-counter under the ticker symbol ZOOM, which, understandably, may have confused some people.
Its market cap, as I write this, is $359 according to Yahoo Finance. Not $359 million…$359. (I assume this is incorrect. Google Finance has them at about $9 million, but that’s probably also incorrect).
However, Zoom Technologies stock went from about $2.75 per share on February 25th to $9 a few days ago. That’s a three-fold return on your investment in under a week. Not bad.
What do Zoom Technologies even do? Well according to Yahoo Finance "Zoom Technologies, Inc. does not have significant operations. Previously, it distributed wireless communication products in the United States.”
This isn’t actually the first time this has happened. Zoom Technologies stock also saw a multi-fold rise back in June, shortly after Zoom Video Communications went public. It then rapidly crashed, as it has done this time around.
Back in 2014, a tiny penny stock with the ticker symbol NEST saw a 1,900% increase in a matter of days. It coincided with news that Google had acquired a company called Nest Labs for $3.2 billion. However, the stock with the ticker symbol NEST was called Nestor Inc. and made automated traffic enforcement systems out of Providence, Rhode Island.
A few years earlier, when Twitter made its initial public offering under the ticker symbol TWTR, a bankrupt electronics retail called Tweeter Home Entertainment Group, with an over-the-counter ticker TWTRQ, saw its stock rise 2,200%.
There’s obviously some confusion from the buyers of these worthless penny stocks, or, perhaps they are being pumped and dumped by online charlatans to unsuspecting novice traders.
We always advise users to buy what you know and to buy what you believe in. When we say you should know the business, we don’t expect people to investigate every little thing about them…but surely the least you can do before investing in something is check that it’s the right stock.
Alternatively, we could find a bunch of tickers that vaguely resemble companies that may go public sometime soon, buy a load of their stock and hope for the best. There’s a tiny Swiss ETF with the ticker symbol ABNB if anyone’s interested.
I’m only joking. Don’t do that.