Q&K International (NASDAQ: QK) stock is up 50% this morning premarket in an entire absence of news about the company. This isn’t what we would normally expect and so it’s worth digging to try and find out what actually is going on. If we can find out what’s causing it then it’s possible to think through how it might be traded.
Q&K has had a hard time of it; it has to be said. The IPO was back in November 2019, and that wasn’t a great time for a Chinese apartment rental company – and online such market – to come to market and raise $40 million.
Hmm, actually, we can look at that the other way around and from the company’s point of view it was a great time – they’d not have been able to do so in March 2020 now, would they? The reason being covid of course and that’s what’s killed the business prospects in the interim. Lockdowns are not a good time for folk to be looking to change apartments.
Bad luck and all that, and the Q&L stock price has been falling ever since. A result of this is that NASDAQ issued the usual warning for a stock price consistently under $1 and Q&K could have lost the NASDAQ quote if this wasn’t sorted by 28 March 2022. So, a reverse stock split was undertaken. The ADR changed from representing 30 Class A ordinary shares to 150. The effect of this was that ADR holders had a five for one reverse stock split.
Well, OK, that gets the Q&K stock price back over $1, except it didn’t turn the business prospects around, and so that price is back to 90 cents or so. Which brings us to today’s price jump, which is varying between 50 and 60% even as this is being written. There is no particular reason to be seen for this price change.
There are no releases on the NASDAQ site, nothing on the company investor page. Yet volumes seem quite high, 1.25 million already, against a normal daily total of under 1 million. Clearly, something is going on here because stocks don’t just randomly move 50%.
It’s not even that there’s a substantial short position being affected by a slight rise – thereby triggering a scramble to cover. Short interest seems only 1.3% so a short squeeze isn’t something that would work.
Of course, we’d like to know what is driving this. For only if we do know can we think about trading the price change. But given the paucity of information, we don’t know. Therefore any trade would simply have to be making assumptions about either information as yet undisclosed or trying to rise momentum. Both of those being fairly risky trades to be trying to do.
A reasonable supposition for the construction of a trading position here would be to find out what has driven the price change then trade based upon assumptions about that. Trading blind, purely on price changes alone, might carry more risk than many will be comfortable with.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.