Shares of Petro Matad Limited (LON: MATD) are up 180% from their April lows as the company makes progress on its Mongolian exploitation license, which is close to being approved. Still, are the shares overbought?
The short answer is yes; the company’s shares appear overbought and could be facing a correction soon, but the more relevant question is, how big of a correction will we get?
Firstly, Petro Matad shares started rising on April 12 after the company announced that it had secured a $1.5 million credit facility from Petrovis, its main shareholder and parent company.
Investors bought the company’s shares given that it had received a lifeline that would allow it to fund its future operations since it is yet to generate any revenues.
The company noted at the time that it had made progress on the two last steps left to submit its license application for the exploitation of Block XX.
Petro Matad shares rallied up to April 22 when they pulled back, giving up some of their recent gains as the bulls took profits and the bears jumped in. The stock went on to trade sideways up to May 10, when they spiked higher once again.
The company announced that it had received support from the Mineral Resources Professional Council (MRPC) for Heron Field’s development plan. The firm said it would submit some technical clarifications to the council for the plan’s final approval.
Petro Matad shares have risen in anticipation of the pending approval in a classic buy the news, sell the rumour scenario, and are likely to fall once the plan is approved.
Traders who missed out on the recent rally should not jump in now as the risk: reward setup is not favourable. I think a better buying opportunity will emerge after the next pullback.*
*This is not investment advice.
Petro Matad share price.
Petro Matad shares are up 150% from their April low of 2.66p to their current price of 7.45p.
Petro Matad shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are Petro Matad shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies
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