Why SGOCO Group Is Plummeting on Tuesday | The Motley Fool

What happened

For SGOCO Group (NASDAQ:SGOC), it was the days after Independence Day when the fireworks were seen. From July 6 through July 12, shares soared more than 663%. Today, however, the Chinese conglomerate stock is coming back to earth. As of 11:31 a.m. EDT, the stock had fallen 42.6%. In addition to investors taking profits, the stock’s decline is attributable to the attention that it received from a well-known analyst.

So what

Unsurprisingly, SGOCO Group didn’t report any news this morning. Instead, the stock’s fall is reflective of its status as a meme stock. That means it’s subject to extreme volatility. While shares raced nearly 200% higher yesterday, day traders are choosing to gather profits today and look for their next get-rich-quick opportunities. 

Image source: Getty Images.

The other catalyst motivating investors to act this morning is Jim Cramer’s reference to the stock yesterday. While he didn’t refer to it by name, in a video segment he referred to a Chinese company (SGOCO Group is headquartered in Hong Kong) that “does flat panel screens.” According to a recent SEC filing, SGOCO Group sold its equity stake in SGOCO Group (Fujian) which “allowed SGOCO to reform the business and reduce the reliance of traditional flat panel LED and LCD monitor products.” Cramer’s characterization of the company may not be 100% accurate, but since there were no other noticeable Chinese-based meme-like stocks with exposure to flat panel screens, investors surely inferred that Cramer was referring to SGOCO Group.

During the segment Cramer stated in reference to the stock’s meteoric climb yesterday, “It’s beyond me that this stuff is allowed, beyond me that you could have a Chinese stock that could be ramped like this.” He proceeded to characterize the movement as “pumping and dumping.” 

Now what

The fact that SGOCO Group’s stock is nosediving today is a valuable reminder to investors that buying meme stocks is extremely risky — similar to purchasing a lottery ticket. While there are people who will be able to make money day trading, there are many, many more who will be unsuccessful. Therefore, smart investors would be wise to look elsewhere than at stocks like SGOCO Group.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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