Can a stock trade lower on good news?
No matter how illogical share price movements may seem, there are times when the market does the unthinkable. Just look at Family Zone Cyber Safety Ltd [ASX:FZO].
After opening higher at the start of trading, the FZO share price has fallen 8.27% lower at time of writing. A startling decline for a company that released some extremely positive news today.
But that’s just the way it goes sometimes…
Record results fail to impress
Family Zone’s quarterly update had a lot to be impressed about.
Revenue was up 250% year-on-year, with $4.4 million collected in the three-month period. With $3.8 million worth of total contracts signed in the period as well. Locking in some fantastic sales figures for future years.
Just look at how much of a standout this recent quarter has been:
As you can see, the orange bar (September quarter) is way beyond prior years. Even doubling the results achieved in the March and June quarters for FY20.
Plus, almost all their other key metrics also saw triple-digit percentile gains. With the number of schools, students, and contracts all growing rapidly.
And yet, the share price has fallen.
It’s quite the strange situation, at least logically speaking.
As for why Family Zone’s share price has fallen, well, it’s tough to say.
Perhaps investors were hoping for an even better result than they got. After all, despite staggering percentage increases, Family Zone isn’t actually making all that much money.
$4.4 million in revenue for three months of operation is pretty slim for a $157 million market cap stock.
It’s a valuation that rates them like a high-profile tech play — which they may end up being. But right now, it is hard to gauge the true potential of this company.
Because of this, it doesn’t surprise me to see such volatile activity. This is a stock that the market and investors are trying to figure out. Which can often lead to scenarios where you’ve got a falling share price despite good news.
Everything must be considered in relation to other factors and variables.
That’s what makes investing in small-caps so tricky, but also potentially lucrative.
If you’re looking for other exciting tech plays though, we can help. Our report on high-potential tech trends will show you three stocks that are ripe for the picking.
For Money Morning