For folks who’s like to take a position in China’s recovering economy, one interesting company to look at is Chinese used car dealership Kaixin Auto Holdings (NASDAQ:KXIN). It’s an interesting investment, to be sure, but there are some important things you’ll definitely want to know before you buy KXIN stock.
For one thing, due to its volatility, KXIN stock isn’t for everyone. This stock has been known to rally sharply, so that’s appealing to speculators. Yet, KXIN’s big spikes have been followed by equally sharp retracements.
That’s why I need to emphasize that KXIN is a lottery ticket type of investment. By that I mean, KXIN has the potential to double, triple or more. On the other hand, the share price could get cut in half or worse.
Perhaps the weirdest thing about KXIN stock is that its price moves haven’t necessarily been logical. It’s been difficult to identify precise catalysts for KXIN’s pops and drops. If that doesn’t deter you, then let’s put KXIN under a microscope now and see what we find.
The Baffling Rise of KXIN Stock
For much of 2020, KXIN stock under $1. On some days in September, the stock even traded below 50 cents. Suffice it to say that KXIN looked like it was going nowhere fast.
Then came October, and the picture changed dramatically. Unbelievably, KXIN stock skyrocketed from 54 cents on Oct. 13 to more than $8 on Oct. 19.
As InvestorPlace contributor Ian Cooper reported, “KXIN stock exploded 2,381% in just days in October.” Even the company itself was evidently shocked by KXIN’s astounding run-up.
“The spike of stock price came as a surprise to people in Kaixin,” the company commented.
Gravity Sets In, Twice
What goes up in the stock market, typically must come down at least partially at some point. Or, as the old saying goes, trees don’t grow straight to the heavens.
Thus, on Oct. 20, KXIN stock plunged to $4.75. During the first half-hour of the trading session, the stock was halted three separate times.
“There is no change in the status of Kaixin’s business operations since the company filed the last 6-K on Aug. 23, 2020, and its dealership business is still in halt,” Kaixin Auto said in a statement.
Perhaps that’s the company’s way of saying that it’s just as baffled as the investors when it comes to the price movements of KXIN stock. Later, in November and December, a similar pop-and-drop would occur as KXIN took a quick round trip from $3 to more than $9, and then back to the $4 area.
Making Sense of It All
The more recent spike and decline of KXIN stock also, as far as I can tell, wasn’t accompanied by any company-specific news. The lack of clear catalysts may be a source of frustration to logical-minded traders, I’ll admit.
After KXIN stock’s earlier spike-and-collapse, Louis Navellier and the InvestorPlace research staff ventured a guess that’s as valid as any I’ve seen:
“… we might point to the fact that Kaixin tends to focus on premium automotive brands. And, many of these brands have recently expanded their offerings of of electric vehicles.”
And surely, you know that the electric vehicle sector has been red-hot lately. Since Kaixin Auto generates revenues from the sales of used vehicles, it’s possible that traders viewed KXIN stock as an indirect play on the ups and downs of the electric vehicle market.
I suppose that this makes sense, since not all electric vehicle sales will involve brand-new automobiles. It’s conceivable, then, that the indirect electric vehicle connection could induce another spike in the KXIN stock price at some point in the future.
The Bottom Line
If it bothers you when a stock pops or drops with no clear catalyst, that’s understandable.
Yet, that’s a reality that KXIN stock traders will need to accept. And if you can accept it, then another inexplicable, illogical price spike might be just around the corner.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.