Key points:
- Neptune Wellness stock is up 42% premarket
- There's no obvious driver for this, no clear news
- So, the question is how far do we think this will go?
Neptune Wellness Solutions (NASDAQ: NEPT) stock is up 42% this morning on no particular news about the company. This does, of course, make a nice difference to the 95% (OK, 94.6%) loss of value over the past year but it's really not enough to make up the difference, is it? Percentages don't work that way once we use the stock price of the day as the denominator in our percentage calculation.
As to what's caused that near total loss of value for stockholders there's not any one specific reason here. It's just that the business has not been doing well. It's not like they dived into cannabis, or crypto, and so got themselves hit by the market problems in those sectors. It really is just that the operating performance of the company isn't good therefore the stock has lost value. All of which sounds a little gloomy but there we are.
As to the business they're in it's “integrated health and wellness” products which, in this time of pandemic we might think would do well – but clearly not. It is useful to think of who they're trying to sell to – those who want health products. But the point is that this isn't like pharma at all, this is about marketing. Without being too cynical the actual products don't matter very much, it's all about how they're marketed. Clearly, not well enough to break into the market at any substantial remaining margin.
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The problem with something like this Neptune Wellness stock price movement is that we've not got the information to know what our own trading position should be. Sure, we could look at this rising stick price and shout “momentum” and follow the crowd. But we've no certainty that the momentum is going to continue. For as we don't know what triggered the initial move then we can't work out how long we think it will last. And following momentum in very thin premarket trading can be a painful experience. It gets worse if we think that it'll top out soon and so we should ride it down again. That means going short and going short in thin markets has consumed many a trader's capital.
Trading ourselves purely on what we think other people might be thinking about whatever it is that we don't know might not be the most sensible of all trading strategies. Which is that very problem – this fog of ignorance. Now, if it's possible find out why Neptune stock has risen then it's also possible to come to a view on how far we think that rise will go. But if it's purely market sentiment then we've be taking rather a lot of risk in following that crowd this morning.
It's possible to think of this another way. If the Neptune business depends – as we might think it does – upon prowess at marketing then what might lead to a large change in marketing prowess and thus a 42% change in valuation?