penny stocks sell off

Penny Stock EVFM Plummets After Considerable Insider Sale

Such is the case with penny stocks. They rise quickly and bring incredible gains. But the other side of that coin is an extreme that traders hopefully won’t encounter frequently. Are there losses with penny stocks, of course. However, when it comes to massive sell-offs, you really need to keep your head on straight to avoid getting too emotional. In the case of Evofem Bioscience (EVFM Stock Report), what happened on Friday wasn’t anything short of a cold shock to investors.

penny stocks to buy sell hold Evofem Bioscience (EVFM stock chart)

Before I get into those details, let’s go over the company itself. Quite honestly, EVFM stock was experiencing a consistently bullish move since the end of July. It was all leading up to the stated launch of the company’s Phexxi product. It has been the company’s main focus for some time now. Phexxi is Evofem’s pregnancy prevention, prescription gel for women.

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Weeks upon weeks the company continued pressing focus on September 8th as the launch date. As you’ll see on the chart, between July 30th and the end of last week, EVFM stock moved up 35%. What’s important to note here is that the 35% move came over the course of an extended period of time and not overnight. For all intents and purposes, those classic “swing traders” likely paid attention to this move, based on its consistent uptrend.

Penny Stocks & Financing Hurdles

One of the “hidden risks” of penny stocks involves financing deals. Companies will raise funds at a discount to the market in exchange for large sums of money, upfront. Generally speaking, when companies announce such discounted offerings, the market reacts negatively. In turn, most penny stocks experiencing bearish selling will see shares drop to levels around where the financing was done.

An example of this is a company whose penny stock trades around $1. Let’s say that this hypothetical company announcing a financing deal, raises money at $0.60 a share. Chances are that penny stock ends up dropping after the details are revealed. It might dip to $0.60 or even lower depending on other specifics.

These capital raises aren’t typically something that you can plan on as a trader. There usually aren’t any announcements made saying “hey, we’re going to raise money at a discount.” But you will find somewhat of a “heads up” in the company’s filings. Look for things like shelf registration statements. Companies will use them to register a large sum of shares for future issuances at prices determined later on. At least you’ll have an idea in mind that the company is actively seeking funding. Now, do all penny stocks conducting financing experience sell-offs, no. So it’s important to read the fine print when a filing comes out related to such an event.

What Happened To EVFM Stock?

I wanted to discuss that because it’s a frequent thing we see in the world of penny stocks. But this isn’t what happened to EVFM stock on Friday. No, something that seems worse and doesn’t evoke confidence in the minds of traders.

[Read More] Are These The Best Penny Stocks To Buy Under $1? 3 To Watch Now

Just 2 days after the company’s Phexxi launch date, we see a FORM 4 was filed. Lately, FORM 4s have been a positive catalyst for quite a few penny stocks. If you don’t know what FORM 4 is, then check out our article about penny stocks & important SEC filings.

In general, this form shows insider trading activity. Lately, most insiders have been buying shares. In those instances, penny stocks took off as this was seen as a vote of confidence by management. In the case of EVFM, the latest FORM 4 shows something much different. CEO Saundra Pelletier dumped 122,500 shares into the market on September 8th.

An “Odd” Side-Effect Of Phexxi?

Yes, you read that correctly. Look at the Form 4 filing and you’ll see that the Transaction Date was 09/08/2020; the exact date Phexxi was set to launch. What’s more, is that EVFM stock was sold at an average price of $3.26; just 20 cents off of the high of the day on the 8th.

So, the date that the company not only released a physical press release on a highly anticipated, pre-announced launch of Phexxi, also saw the company CEO dumping shares into the market. What’s also something to point out is that on the day she sold, Saundra Pelletier said, “We are thrilled to usher in a new era of sexual and reproductive health with the launch of Phexxi.” 

Was Pelletier thrilled about the launch or more thrilled about selling $399,350 worth of stock? Prior to this, not only were shareholders upbeat, but analysts were also clearly bullish on the outlook of the company. Just a few weeks prior, analysts at Morgan Stanley started Evofem at Equal Weight giving it a $3 price target. This is also not the first time Pelletier sold shares. Back in June, just 3 months prior, 85,620 shares were sold at an average of $3.31; another $283,402 for Pelletier.

Different Types Of Insider Selling

What’s more, is that looking at this filing, I wasn’t able to identify that this sale was connected to any previously established selling plan. This is important to note especially when you’re talking about a CEO. Take a CEO like Jeff Bezos, for instance. We all know he sold 1 million shares of AMZN stock at the start of August.

One of the reasons this wasn’t such a huge blow to AMZN stock, in my opinion, is based on the fact it was related to a selling plan that was already in place. You can see this in the notes of his Form 4, “This transaction was effected pursuant to a Rule 10b5-1 trading plan adopted by the reporting person.”

Rule 10b5-1 allows significant shareholders to sell a preset amount of shares at a preselected time. Many executives use this rule via 10b5-1 plans to avoid any scrutiny over insider trading.

EVFM reason for selling

*UPDATED 9-12-2020*
It would appear that amid a lot of hype on Twitter over the recent trading activity, the company’s Head of Investor Relations shed light on the cause for selling:

“Saundra sold a % of her stock to buy a home for her elderly parents…”

While the company itself hasn’t put out a public statement, it’s interesting that this logic was identified by the company’s own IR as a valid reason for insider selling of $400k worth of stock that coincided with a major company event.

How Do You Feel About This Penny Stock After Insider Sales?

Much like discounted offerings, unplanned insider sales aren’t something you can prepare for. Obviously, anyone who saw all of the positives as well as the bullish sentiment surrounding the September 8th launch date probably didn’t think the CEO would be selling shares. That is if you’re of the school of thought that leaders believe in the future potential of the company they lead.

Pelletier reported that there are still 360,888 shares beneficially owned as of the date of the filing. This biggest question for many is “now what”? Obviously, the commercial launch of Phexxi is likely a focus moving forward. Evofem is also developing other treatments. Its EVO100 is being tested for the prevention of urogenital chlamydia and gonorrhea in women.

According to Chief Medical Officer, Kelly Culwell, the company is planning to move forward with a randomized placebo-controlled Phase III clinical trial. She further stated that “we expect to enroll our first subject in the fourth quarter of 2020.”

In light of these latest developments, where do you stand on EVFM stock? Can things turn around after this latest bout of insider selling?

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