Something that few penny stock investors pay attention to are stock market updates. That isn’t necessarily a good or bad thing. But it is “some-thing.” In a few instances, a penny stock can fall victim to a case of mistaken identity. This may be a familiar story for some of the more experienced investors.
The hype surrounding some IPOs can cause a buying frenzy in stocks that have a similar name or a stock symbol that “could be” the one a company chooses to IPO under.
Twitter Was Never A Penny Stock
The statement is true. But back in 2013 investors scrambled to get ahead of the supposed flurry of buying that would surely come with the Twitter (TWTR) IPO. To the benefit of one bankrupt firm, Tweeter, investors flocked to the penny stock.
Since there was no activity and likely little debt available to dilute the market, the dormant stock ended up running from $0.02 to highs of $0.15. Once the stock had run nearly 1,800%, stock market regulators halted trading in the stock.
What was the purpose? Penny stock traders were confusing the symbol “TWTRQ” with what Twitter would list under once it completed its IPO: “TWTR.” This close resemblance in stock symbol resulted in a huge increase in a no name, tiny market cap company all because of mistaken identity.
Zoom, the “Penny Stock” Repeats History Ahead of Zoom Video IPO
As if history was repeating itself, the “Twitter Incident” happened again. The much-anticipated IPO of Zoom Video (ZM) caused a stir in the investing community. The result was yet another penny stock to buy, according to some high volume traders. During the weeks leading up to the $356.8 million IPO that valued Zoom Video at roughly $9 billion, shares of a penny stock began to see trading activity increase.
Zoom Technologies (ZOOM Stock Chart) drew the “lottery ticker.” That attracted speculators to buy up shares of the former Chinese wireless company. This began weeks prior to the Zoom Video IPO. Though it has NO MARKET and there isn’t a Level 2 for the penny stock, traders blindly bought grey market shares of the company.
ZOOM stock ended up moving from $0.04 per share to highs of $6.00. The epic rally took this dormant company and increased its market cap by 14,900% since March 22. As you’ll notice, once the “real Zoom” made its IPO debut, shares of ZOOM began to crumble.
The Moral Of The Story? Don’t just believe hype, don’t make assumptions, and do your homework before you choose a penny stock to buy.