There’s one trend I’ve noticed with a few momentum stocks right now…
More specifically, ones that have been beaten down…
And I believe it’s something momentum traders should pay attention to at these levels.
It’s the one factor that I believe caused some wild moves in stocks like Aurora Cannabis Inc. (ACB) and Chesapeake Energy Corporation (CHK) recently.
It’s what Wall Street likes to call financial engineering.
Today, I want to reveal to you what’s going on in Groupon Inc (GRPN)…
And why it can be the next “zombie” company set to pop.
Before I get into the details about GRPN, I need to explain what’s been going on with some stocks out there.
If you haven’t heard the news yet…
There have been stocks conducting reverse stock splits.
I know what you’re thinking…
Jason, what’s a reverse stock split and how does it affect stocks?
How Reverse Stock Splits Work
Well, a reverse stock split, in my opinion, is a way for companies to artificially increase share prices. Typically, I’ve noticed this happens when stocks get beaten down…
And are trading near a buck (sometimes lower).
With a reverse stock split, the market cap doesn’t change…
The only things that do change is the structure of the shares as well as the price.
For example, if a stock is trading at $1.00 and it had 100M shares outstanding… and it conducts a 1-for-10 reverse stock split…
The price rises to $10.00, while the shares outstanding decreases to 10M.
So this actually affects the supply out there.
This happened with ACB before it made its massive run-up… and the massive move in CHK.
The latest company to announce a reverse stock split is GRPN.
Tomorrow, the company conducts a 1-for-20 reverse split.
So wherever the stock closes today, the price will be multiplied by 20. While the shares outstanding and shares floating will be divided by 20.
With GRPN, the shares floating should drop to around 22M, while the shares outstanding will be around 28M.
That means there will be very little supply out there.
In other words, if the demand picks up in GRPN, it could see some serious spikes.
So this stock is going to be on my radar… because if there’s a catalyst this stock could see a large move like ACB did a few weeks ago, as well as CHK.
Before you go out and try to slam into shares of GRPN ahead of time… make sure you understand the risks involved and how momentum stocks trade.
If I see anything interesting in GRPN… I’ll be sure to let my subscribers know about my thoughts on the stock.
Now, if you want a “crash course” in trading momentum stocks and to learn my process to hunt down momentum stocks, register for my latest training workshop.
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