Usually when I see a stock up 340% in five years, I expect to see one of two things. The first, would be explosive business growth. Otherwise, I expect the company to be profitable or at least improving margins. Support.com (NASDAQ:SPRT) has neither of those two, yet it outperformed the S&P 500 more than four times in the last five years. SPRT stock was up 27% just yesterday.
What is amazing is that this comes on top of six strong prior weeks. Clearly Wall Street is in love with it for now. From here, I would caution new investors against piling into it. And there’s your spoiler alert on what to do from here.
The concept of chasing runaway stocks for investments is sub-optimal. Trading in-and-out to ride the upside momentum is totally different.
Those looking to get long SPRT this week have to know on which side they are. Buying high to try and sell higher works but is only appropriate for fast scalpers.
SPRT stock has one of the craziest charts I’ve seen in a long while. Even after this incredible 1,000% rally off the pandemic low, it is still down 90% from its all-time highs.
There’s something unnatural about how Wall Street deals with this company. Now the rally comes amidst a wave of merger headline risk and it will be bumpy.
SPRT Stock Chart Details Matter
Most recently they announced a merger with Greenidge generation holdings. To add to the confusion, the acquiring company is a Bitcoin (CCC:BTC-USD) miner. New investors have to contemplate another variable going into Sept. 10. That’s when Support.com shareholders will vote on the buyout by Greenidge. The details are fuzzy, so it’s going to be a wild week for SPRT stock.
Put on your seat belts because it will be risky.
The information on the charts can provide guidance especially when the fundamentals are grey. So far, the stock ascent has been exponential since the middle of May.
The first wave was a 100% rise that brought SPRT into $5 per share. The second burst stalled near $9 per share. Those are the two levels that should matter on the way down. I know it is a wide range, but remember how it got here. This last bullish August thrust is 100% already and still ongoing.
The fundamentals are not the story for Support.com. The metrics just don’t support the price action. Therefore, the hoopla centers around the merger speculation. In the last four years, total revenues shrunk 30%. Net income also deteriorated by a double.
Any which way you slice it, there’s not a good story to tell from the traditional metrics alone.
Hopium Kills Folios
Moreover, there is too much hopium in the stock. Those buying shares up here for an investment are giving it six years worth of sales credits. This was less than one year in 2017. When investor expectations are this high, it is a great recipe for disappointment. If the headlines come out to be less than ideal, they could throw a hissy fit.
Conversely, this by no means is a good stock to short. Yes, I have a bearish perspective, but I also believe that investors are either with it or away from it. Shorting a crazy price action like this makes absolutely no sense. Same for chasing it after such steep rally, even if it means missing out on much more upside.
I remember not too long ago when investing involved actual homework and fundamentals. Jumping into a moving rocket ship now makes for a precarious condition. I believe in taking speculative bets, but this one seems too far gone to start now.
SPRT stock at this level is too high to chase, and too hot to short.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
