Why Do The Management Teams Of Momentum Stocks Undertake Offerings?

The Russian invasion of Ukraine spiked oil prices to highs unseen since 2014, causing extreme volatility in the oil markets.

As compared to multinational mega cap companies that provide Wall Street with visibility into its operations, investors don’t know how much developments in Ukraine will impact tiny momentum stocks.

What Happened: The rippling effects caused investors to purchase shares of low-float, smaller oil companies, resulting in a short squeeze.

As an example, shares of U.S Wells Services USWS were trading at $1.43 on Feb. 28, and on March 8, the stock saw highs of $3.93.

Financing is the core of the stock market, and investors are hesitant to make trades with low-float companies over fears of a secondary offering that would reduce existing shareholder value.

Why It Matters: U.S Wells did just that: on March 9, the company announced an offering, issuing more stock for sale to fund its growth and operations, bringing down the price of the stock and investor sentiment.

Just 20 minutes after the press release, shares of the stock sharply fell to lows of $1.08.