There have been some mind-boggling moves in several biotech stocks as of late. Perhaps one of the most impressive moves has been in the shares of OvaScience Inc OVAS. The maker of new fertility treatments for women has rallied from its all-time low made ($5.51) in May to its all-time high on Thursday ($52.94). The last $20.00 of the rally has taken since December 17.
Good News And Analysts Jumping On Board
That portion of the rally can be directly attributed to company's announcement that it has achieved its 2014 corporate goals. In addition, the company released that it is advancing the Augment(SM), OvaPrime(SM) and OvaTure(SM) treatments for patients in the need of new fertility options.
The good news from the company coupled with a Wedbush upgrade from Neutral to Outperform and bumped its price target from $22.00 to $47.00. On that same day, JMP Securities maintained its Outperform rating and raised its price target from $16.00 to $54.00. Six days later, Oppenheimer joined the party and upgraded the issue from Market Perform to Outperform and announced a Street high price target of $55.00.
Secondary Offering After Monster Run In Share Price
Now the company is capitalizing on the parabolic rally with a secondary offering. On Wednesday, the company announced it's offering 2.3 million shares at $50.00 per share. At first the Street shrugged off the possible negative implications and rallied the issue to $52.94 the following day, but retreated to settle right near the important $50.00 level at $50.03.
In Friday's session, the Street was taking note of the potential glut of supply at $50.00 and after a brief rally to $50.49, it traded as low as $49.29, but rebounded to the upper $49.00 handle.
Dennis Dick, of Benzinga's #PreMarket Prep, is a shareholder in the issue from the $10.00 level and noted, “It tested the $50.00 level multiple times in December before breaking out above it early this week. But now with the secondary on the table it is very important for that $50.00 level to hold. The stock has had an incredible run and some investors (including myself), have started taking some chips off the table.”
Where Have We Seen This Before?
Dick's cautious stance could be warranted. Reviewing the price history of issues that issued secondaries after monster runs, the corresponding price action is not so pretty. For example, FireEye Inc FEYE, after its run from its IPO low ($35.25) in September 2013 to its all-time high in March 2014 at ($97,35), jammed shareholders with a 14 million share offering at $82.00 during that same month.
Of the 14 million shares, nearly 6 million of the shares were offered by existing shareholders. In other words, they were cashing out when the getting was good, realizing the companies share price had rallied too far, too fast.
Recently, a similar situation has taken place in the shares of GoPro Inc GPRO. The Wall Street darling of 2014 rallied from its June 2014 low IPO price ($28.65) to $98.47 in October.
Once again, just as the company was making its all-time high, insiders wanted out. In a now questionable move, GoPro founders Nick and Jill Woodman were allowed to break its lock-up restriction and dispose of 5.8 million shares. (The proceeds from the sale were gifted to their foundation.) Nevertheless, the timing of the sale was impeccable as GoPro peaked around that time and collapsed to $53,64 on December 22. Shares have recovered some of those losses but are not far from that low as it trades at the $60.00 level.
Looking Forward
Of course, each secondary offering is done for different reasons. In the case of OvaScience, the company may just be in dire need of cash to properly market its products. However, when a stock makes an extraordinary move and the company itself or insiders are willing to part with stock, it's worth paying close attention the upcoming price action.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
