Key points:
- Genocea Biosciences stock is up 60% premarket
- Could it be a dead cat bounce?
- if you drop something from high enough it will bounce, at least the once
Genocea Biosciences (NASDAQ: GNCA) stock is up 60% premarket in what could be simply one of those dead cat bounces that happen from time to time. The observation being – a macabre one but true all the same – that if you drop something from high enough it will bounce, at least the once, even if it's a dead cat. The implication being that sudden and extreme falls in stock prices can lead to a bounce the next day. The actual point of the story being that dead cats then fall back again – and so do some to many crashed and rebounding share prices.
On the other hand, sometimes the initial reactions to bad news are too extreme and stock prices do recover more generally. The big question each time is well, which of these situations do we have here? Just a flood of folk thinking that it must be a bargain after such a price fall? Or the fall accurately identifies the reasonable valuation for the stock?
It has to be said though that it's hard to see what the attraction in Genocea might be now. Genocea stock is down 97% (up to last night) over the past year. On the basis that the company simply hasn't been very good. Their Phase 1 and Phase 2 trials haven't gone well. The basic idea they were following has merit. Some cancers are indeed dependent upon the specific genetics of the patient. So, analyse those wand then design the treatment from what is found out. The problem being that while the idea itself has merit, it didn't quite work out. Not before the money ran out that is.
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This led to their announcement in April that they were to cut staffing by 65% and generally try to right size the company for the resources they had.
The share price fall resulting from that has led to NASDAQ sending them the delisting letter. If your stock price runs under $1 for 10 business days or more then you are indeed at risk of losing that NASDAQ quotation and listing. Various things can be tried to boost that stock price. Like, say, finding a treatment that works. Or raising more capital – difficult when the stock price is on the floor. Or that favourite, a reverse stock split – what Brits call a consolidation.
Having considered all of these then Genocea announced yesterday that it's not going to bother. The obvious implication of this being that there's nothing in there that's particularly worth protecting or continuing to develop. Hey, they had their go and it didn't work out – that's capitalism. So, yesterday's announcement was that they were going to shutter the company, give up the NASDAQ quote (which itself, of course, costs money) and that would be that.
This caused a 16 cents, or 73%, further decline in the Henocea stock price, down to 6 cents. The surprise is the reaction this morning premarket. It's bounced back up 3 and 4 cents, 45 to 60% (it's varying). That's not regaining even yesterday's position let alone that of a year back.
The trading decision has to be, well, is this just that famed dead cat bounce? Buying on contrarian momentum? Or is there actually something of value within that company which shareholders will gain in due time?