Wrong Priced Stocks?
The first thing to say about this particular sweep is that it is focused on wrongly priced stocks that are apparently “too cheap” rather than overvalued. However, there is more than a little focus on situations where the bears have previously, or are still attempting to stick the boot in. Indeed, the normal bear playbook is to call a delay a lie, a loss a fraud, and of course, if this fails to get the share price down, simply make personal attacks on the management.
What is also worth noting is that when a stock does re-rate from a micro-cap to a small cap, or a small cap to a midcap, it is rare that the transition is not met with stone throwing of some kind or the other. All of this can help in the armoury of potentially finding a bargain stock, one that is hidden in plain sight.
Mode Global
But perhaps the best way of working out whether a stock has really been treated unfairly by the market is to compare the fundamentals the last time the share price was at current levels, with where the company is now. A good example of this “water under the bridge” test is Mode Global (MODE). Here the fintech group floated at 50p exactly a year ago, October 5 2020, and in terms of activity and milestones, it can be said that there has not been so much water under the bridge, but a tsunami.
For instance, although Bitcoin is only related to part of the Mode business, when the company came to market, the crypto currency was just over $10,000. It is now knocking on $50,000. But where Mode has really advanced is with regard to all the “fixtures and fittings” of the business, especially on the regulatory side. For instance, in June Mode secured its Electronic Money Institution licence and its AMLD5 registration from the FCA enabling it to offer a range of innovative financial services to both businesses and consumers in the UK. The Revolut comparison may not be entirely appropriate, but nor it can be argued is a measly sub £40m.
Canadian Overseas Petroleum
One of the signs of a wrong priced stock is that it is not only retail investors who are left scratching their heads and emptying their wallets, it can be professional investors, and even institutions. This is certainly the case as far as Canadian Overseas Petroleum (COPL). The shares were suspended here in the UK, needlessly, at 0.38p (the equivalent of 38p now) ahead of its giant killing Atomic deal. They now trade well below the suspension price in March at under 30p, even though Atomic was done at near $40 a barrel versus near $80 now, and the company has added to its resource portfolio.
Whatever the ultimate explanation for the relative share price weakness is, such as distressed holders over the 5 months suspension liquidating, COPL’s fundamentals should be obvious as a company shifting up from microcap to serious production. Presumably, at some time production will take the share price over the line. However, it is evident that Canadian Overseas is not the first stock and certainly will not be the last where the market’s desire to straight jacket its valuation in the little league may require an extended period of release from what may have been a rather crowded trade pre March.
What can be said in the case of both Mode and Canadian Overseas is that once the last of the weak hands are removed, the subsequent recovery can catch traders off guard. A memorable example of this was at Argo Blockchain (ARB) at the end of last year the shares soared from below 10p to over 250p in a matter of weeks. Zephyr Energy (ZPHR) achieved the same multi-bagger ride from the start of this year. Both stocks caught out even old market hands, many of whom proceeded to sell out too early.