After a week that took shares up just shy of 280 percent, a pullback for small-cap developer of brachytherapies IsoRay (ISR) was potentially inevitable. And, on March 21, it came. Shares traded down almost 25 percent on news that the company would be raising over $14 million through the creation of 5.6 million shares of stock and their sale to two institutional investors.
IsoRay showed real strength, making strong gains after a bullish article on Seeking Alpha. The stock more than doubled in a single day after news that the company’s Cesium-131 treatment had tamed a particularly aggressive form of cancer in a 12-year-old patient, and the momentum carried into the next day and pushed the stock even higher.
Shares gapped down almost 16 percent to $2.78 at the opening bell and, after briefly rallying to $2.90, the losses picked up speed and took shares all the way down to $2.23 apiece in morning trading. After bouncing off its low, the stock recovered some, but losses remained over 25 percent just before noon.
Trading took shares back below $3 a share, a level it reached on Mar. 20 for the first time since October of 2007. Once again, the stock was trading incredibly high volume, with nearly 30 million shares moving prior to 12 pm EST despite the stock’s float of only 41.54 million shares.
Given this sort of rapid increase in value, one can hardly fault IsoRay for raising cash while its valuation is at a 5-year high. Just a week ago, the same 5.6 million share offering would only have netted the company just over $5 million based on the company’s market price. However, it's a particularly large dilution of the company's current float, representing a increase in the number of available shares of about 13.5 percent.
And, of course, any stock that nearly quadruples in value over three days with relatively limited news driving the spike is likely going to be the target of some scorn from more-bearish investors. In IsoRay’s case, Mar. 21 also saw the publication of a counter-balance to Sujan Lahiri’s pro-IsoRay piece on Seeking Alpha.
Trying to throw cold water on IsoRay’s hot streak, the piece observed the incredibly high 14-day RSI IsoRay had reached (95), correctly anticipated further dilution through a new capital raise, and points out that the only analyst doing coverage on the stock (Maxim Group) still had a 12-month price target of just $1.50.
“The significant problem that I have with IsoRay Inc. is their current valuation based on their current stock price,” the anonymous author, value investor right now, writes. “I strongly believe that it is way over-valued (based on current earnings/EPS) as long as it is trading anywhere over a $1. I can even live with the (12 month) $1.50 target that Maxim Group (rightfully, their biggest cheerleader) has given them. Again, I ask to you please read their report and realize that this $1.50 target is a 60%+ drop from the current price levels that ISR is trading at.”
Even after the day's pullback, it's hard to see any IsoRay investors shedding any tears. While the stock is down almost a quarter off its peak valuation, it's still nearly at triple its value at the closing bell on Mar. 13. Today's losses were likely motivated by the new public offering, but it's also just as likely that traders and investors were keen to take profit while there was still so much to be taken. With so much volume for such a small float, it's clear that this stock has been a popular momentum play among traders during its meteoric rise. It may also be true that any number of short positions have been taken out in recent days as a counter balance, but only time will tell.
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