Several speculative pet stocks are soaring higher in morning trading today raising questions about what is happening.
TDH Holdings (NASDAQ:PETZ) is up 50% after announcing it had entered into a direct offering with investors. The stock closed yesterday at $2.37 after rising 32% in the trading session.
At the same time, shares of veterinary health company Zomedica (NYSEMKT:ZOM), another speculative pet play, are rising in sympathy with PETZ stock. In the pre-market, ZOM stock is up as much as 10%. At the end of trading yesterday, Zomedica shares stood at 52 cents each, up 49% year-to-date.
What Happened With Pet Stocks
TDH Holdings is a relatively obscure Chinese-based company that makes dog and cat food. While its shares are listed on the Nasdaq in the U.S., the company focuses primarily on its domestic Chinese market as well as on Japan. Its products include everything from wet and dry pet food to chew toys and dental health snacks. Founded in 2002, TDH Holdings has been a publicly traded company since 2017. However, since its market debut, PETZ stock has declined 81% to now trade firmly in penny stock territory.
Today’s sudden price move in PETZ stock is unusual and comes after the company announced that it had raised additional funds through a new share sale.
Specifically, TDH Holdings raised $9.9 million by selling 15 million additional common shares. The company said in a news release that it plans to use proceeds from the share sale for strategic acquisitions and investments in a complementary business. Normally when a company sells additional shares it is dilutive and the stock declines, making today’s rise in TDH Holdings shares even more curious.
Why It Matters
The latest news from TDH Holdings does not justify a 50% increase in premarket trading. While penny stocks tend to be more volatile and move more erratically then shares of larger, more established companies, most penny stocks do not move this high so quickly, and investors should be skeptical. Because of this, there’s reason to believe that PETZ stock’s run higher will be short-lived.
Plus, PETZ delivered abysmal financial results at the end of August that showed the company is struggling. In its latest report, the company said it generated revenues of just $820,000 and posted a loss of $1.93 per share. The company blamed the loss on the continuing impacts of the pandemic, which it says harmed its manufacturing capabilities. Perhaps investors see the latest cash raise as giving TDH Holdings a financial lifeline, but it still doesn’t make sense for the downtrodden Chinese pet food maker’s stock to rally as much as it is currently.
In the case of Zomedica, its stock is trending higher on seemingly no news at all. Perhaps it is moving in tandem with PETZ stock, but investors should keep in mind that ZOM stock was treated as a meme play earlier this year, at one point rising 731% to a peak of $2.91 a share before crashing back to its current price. Like TDH Holdings, Zomedica is a company that is struggling to bring its product to market.
Both PETZ stock and ZOM stock look to continue a pattern of erratic trading when markets open today. While TDH Holdings stock might get a big bump at the start of trading, any gains are likely to evaporate quickly. The same goes for Zomedica. The fact that Ann Arbor, Michigan-based Zomedica has been a meme stock previously should make investors especially wary of today’s price increases. While an 80% gain would be nice, the risks involved in buying shares of volatile penny stocks such as these pet companies is just too great. Investors beware!
On the date of publication, Joel Baglole 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.