Urban One (UONE) stock rose more than 1480% so far this week.
The only recent news on the company was a Monday June 15 SEC filing showing that Brigade Capital Management had sold all of its shares in the company as of June 11. Brigade had previously controlled about 10.4% of the company’s outstanding stock.
The rally started after that Monday filing, and then accelerated Tuesday, leaving many asking one huge question. Why did the price of UONE soar over 450% on Tuesday?
There are a lot of possible reasons why stocks suddenly change price. Sometimes the company announces big news that changes the outlook about the company for the better, or worse. Other times it can be from a changing economy or market cycle. In some cases, a big investor announcing a new stake in a company can be seen as a positive, causing other investors to rush in.
Rarely though does news of a big investor deciding to exit a position lead to such enthusiastic buying of a stock as we’ve seen in both UONE, and the class D shares UONEK.
So what caused the massive price jump?
We are living in pretty extraordinary times right now. There is a global pandemic and protesters filling the streets of cities and towns across the country to protest systemic racism. There is a lot of talk on social media, from both individuals and corporations about efforts to support the Black community.
As the country’s largest operator of radio stations that primarily serve the Black community, it is possible that investors are anticipating a surge in listenership and advertising at Urban Ones’ properties.
Support by purchasing stock can potentially be beneficial to both the business and investor. Investors get to participate in the company’s success, and a higher share price can benefit the company through a healthier capital structure.
What do investors see when they take a closer look at the company’s financial situation?
Urban One’s most-recent earnings report, which was released May 28, doesn’t show much to get excited about in terms of the company’s fundamentals.
The company’s revenue declined by 3.6% from the year-ago quarter, which helped contribute to a net loss of more than $23 million, compared to a net loss of a little more than $3 million in the year-ago period.
Average daily volume for UONE over the last 100 days is 715,769 shares traded per day, but that number is distorted by the first two days of this week, which saw volume of more than 25 million shares traded on Monday and then more than 45 million shares traded Tuesday.
Looking backward, prior to June 4 average volume was in the low four digits. Days where only a few hundred shares traded weren’t uncommon.
Volume spiked to more than 372,000 shares on June 4 and 101,700 shares traded on June 5. Volume remained elevated that week, spiking to more than 308,000 on Friday June 12 before skyrocketing Monday and Tuesday.
These volume numbers are even more incredible when you consider there were only 1.58 million shares of UONE outstanding as of March 16. With a number of those shares held by institutions or other long-term investors, this means there is A LOT of day trading activity.
Clearly the stock is gaining massive interest as traders now want to make sure they get in on the profits. Which leads us to what seems to be the most-likely reason for the jump in UONE and UONEK… it is almost entirely random.
Sometimes stock prices jump based purely on speculation. Small stocks that don’t have a lot of outstanding shares are particularly susceptible to this.
A jump in a stock price can lead other traders to pile in, beginning a cycle that sees more and more people buy the stock as the price and trading volume rise. As more buyers come in, early purchasers flip their shares to new investors as the stock continues to rise.
This cycle works out great for the early buyers, but it can get ugly for those who buy in late.
Those relatively few early buyers make huge gains, while those who buy later, as the enthusiasm starts to fade have a hard time unloading their shares at a higher price.
Imagine the children’s game of hot potato, where everyone his happily passing the tuber along, until the music stops, leaving some unlucky child holding a warm spud.
This is what often happens with these small stocks that see price spikes. People happily flip the shares for a profit, until interest suddenly fades and some unlucky investors are stuck holding a stock they bought at much too high a price with no one to pass it on to.
A similar situation actually happened with Liberty Tripadvisors Series B (LTRPB) shares back in April. The stock saw its price spike to a $134 high after trading around $4 previously. The series A shares at the same time stayed around their previous price as no major news should have led to such a price discrepancy.
UONE hit it's all time high of $40 on Tuesday after hovering around the $2 a share mark for more than 12 years. The stock likely gained some attention when Brigade pulled out, and perhaps got a boost from the current cultural climate.
Neither LTRPB or UONE have any fundamental metrics that back their current prices but traders bid each up until they were massively overvalued. UONE may have made sense at $2 but is way over valued at its current price of around $34.
Traders who want to speculate on the stock’s price in the short term may make huge profits or losses. Long-term investors should stay away from this kind of action. Many stocks have price surges like this and almost none hold their value. At best they hold a value slightly higher than before the price surge.
Will $40 still be the high by the end of the week for UONE? Maybe, or maybe not, but don't count on UONE trading higher than $40 into July.
