One Of The Top Penny Stocks Of December Has Rallied Over 700% Since Last Week
It’s rare and infrequent that we see an IPO become so explosive. But it does happen. It’s even more rare to see these kinds of moves from penny stocks no less. But again, it does happen. If you remember some of the biggest IPO breakouts this year, I’m sure Beyond Meat (BYND Stock Report) will take a position on that list.
Its IPO price was $25, the stock opened trading at $46 and over about 90 days, BYND stock skyrocketed to highs of $239.71. A mix of lower outstanding shares at the time, high levels of short interest, and a lock-up on some of the larger pre-IPO shareholders helped create the perfect storm for a retail trader bonanza.
You’re probably asking yourself what this has to do with penny stocks. Well, if you were paying attention to penny stock scanners this month, you might have missed this gem. Before I get into the juicy details, let’s start by defining what a penny stock actually is. There are several schools of thought on this but the official definition of penny stocks from the Securities & Exchange Commission is the following:
Penny Stocks & Low Floats
If you’ve read our articles frequently, you know that the float can play an important role when planning a trade. The lower the public float, the fewer the shares there are to trade in the retail market. This is why you see penny stocks with low floats & stocks in general with low floats make parabolic moves in price.
What are considered low float penny stocks? It depends on who you ask but as a general consensus, anything at or below 10 million shares would consider itself a low float penny stock. So now we have a few baseline definitions and I didn’t write all of this just to give random information.
There’s a reason which has everything to do with quite possibly the biggest penny stock breakout we’ve seen this month. A combination of low float, low price, and a hot IPO climate helped create a perfect storm.
This Is No Longer A Penny Stock
Unfortunately, the company in question is no longer considered a penny stock; far from it now. Shares of LMP Automotive Holdings (LMPX Stock Report) soared as much as 780% from its $5 IPO price this month. It was only 7 trading sessions ago that the move began.
The company priced its IPO at $5. On opening day, the stock promptly dipped to a low of $4.90 and didn’t look back after bouncing. Fast-forward to today and LMPX stock has managed to hit highs of $44 a share.
So what happened? The LMPX IPO could be one of the smallest I’ve seen in quite some time. The company priced its $5 IPO for just 2.3 million shares of stock. This only equates to $11.5 million in gross proceeds before offering expenses. Let that sink in for a moment.
Meanwhile, we have companies like Aphria Inc. (APHA Stock Report) which are already public, raising some $80 million in a shelf registration. Needless to say, after adding in an additional 345,000 shares from underwriters, LMP’s 2.645 million shares were set to hit the market and the company successfully raised $13.225 million in gross proceeds.
According to its S-1 filing, after the IPO issuance, the company’s total issued and outstanding share count still only sits at 8,406,184 shares of common stock with the underwriters exercising the over-allotment option in full.
But it wasn’t just a low float and low price scenario that helped boost this momentum. We even see insider buying going on too. If you check out the profile page for LMP Automotive Holdings on PennyStocks.com, you’ll notice a lot of FORM 4 documents filed. These show insider trading activity, who’s buying or selling, and at what price. Take a moment and sift through those forms and you’ll quickly see that though this is still a young market, insiders are scooping up shares.
Insider Activity Helps Boost This Penny Stock
Company CEO, Samer Tawfik was a big contributor to these trades. If the FORM 4s are correct, LMP’s CEO purchased over 680,000 shares of LMPX stock between $5.12 and $15.01. Keep in mind that the float itself is what was put out for the IPO. That float just became smaller with Mr. Tawfik’s purchases.
Furthermore, directors and officers and “substantially all of its shareholders have agreed with the underwriters to [a lockup of stock] for a period of 180 days after the date of the final closing of [the] offering.” Aside from all of this, there is a company behind a 4 letter stock symbol. What does LMP Automotive Holdings do?
Its mantra is “Buy, Rent or Subscribe, Sell and Repeat.” The company sells automobiles, buys pre-owned and new automobiles, as well as offer a rental model. What’s more interesting is that the company offers a subscription model as well. This is something newer in the world of automobile “leasing.” It essentially breaks down simply as “subscribers” can change cars every 30-days.
Based in Plantation, Florida, LMP essentially has one main outlet but gives global access via its website. But the additional hook is that the company says it will pay up to $300 to fly to South Florida and pick up the vehicle themselves.
What’s Next For LMP?
From an operational perspective, the company generated roughly $16.6 million in revenue last year. Currently, for the 9 months ending in September, it’s down $7.8 million. This is lower than the same 9-month period last year where the company recorded just under $11 million ($10.85M). Something of note is that net loss decreased thanks to a lower “loss from operations.”
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Aside from what came from the IPO, the company’s balance sheet appears stronger this year than last. There’s over $2 million in cash in the bank and over $8 million in inventory on the book. The last few trading days attracted a lot of attention from the trading community as well. Some of the highest-rated trading chat rooms even found interest in LMPX stock:
Big wins are great even if it didn’t happen from the penny stock level. But the next step is determining the longevity beyond this short term price spike. Can this be more than just a technical “trade”?
From a fundamental perspective, the numbers become more important. You can look at the S-1 filing yourself and be your own judge. But there’s one line of text in it’s filing that states, “We have sustained negative gross margins mainly due to the vehicle depreciation and sales of vehicles at losses in order to generate immediate cash to fund the payments on the convertible notes, our common stock repurchases, and to fund monthly overhead costs.”
So it might be prudent to monitor this. In any case, it’s been one of the top stocks to watch in the short term. We’ll see how things unfold as the weeks and months go forward.