Hello all. Firstly, I should say that I am finding the Stockopedia resources massively helpful already. I'm almost entirely new to stock investing, and am still playing around in preparation for assembling a 'proper' portfolio. One stock I had my eye on before joining the site was IEnergizer (IBPO), and I was interested to see that it had a very good StockRating when I joined the site and compared my previous watchlist to the ratings on Stockopedia.
Didn't hit 'buy' as I was distracted by other shiny prospects, and when I checked back the next day, it had fallen by 18.5%. Curious, I tried to work out why - couldn't find any adverse news or any other particular reason for it to have plummeted. The only thing I can think of is that it's a small cap, the spread is big, and when someone sells into the market at decent volume for whatever reason, it drastically affects the share price.
I was just wondering if an older and wiser head could let me know if I'm correct on this, or if there is something underlying that I've completely misunderstood? It may be a case of 'this just happens sometimes in the market' - but I'd like to use it as a learning opportunity if possible!
Cheers :)
Hi Matt, welcome. I don't have any insight on iEnergizer (LON:IBPO) itself, but I suspect you've nailed on the reason for the volatility in the share price. It appears to have a very low free float of shares, just over 17%, which would suggest to me it is extremely illiquid; that is what often causes huge spikes up and down when individual trades go through. That seems to be confirmed by the spread between the offer and bid price currently showing as 18% (which is crazy high), though that might vary during the trading day. In short, if this is a stock you are genuinely interested in then you will likely have to accept the volatility that comes with its illiquid nature, as well as a likely hit on the spread; if you plan to hold for a number of years and think the share price will do very well then you may not care.
This situation is not the norm for the vast majority of shares so don't let it put you off from your research of other stocks, or using stockopedia's metrics; it just exists for certain small companies and/or stocks that have very low free floats. I personally avoid these situations, unless I feel very confident about the business and plan to hold for a long time (i.e. they are not trading stocks). In fact, I think the only time I have been prepared to pay a 10% spread was for Water Intelligence (LON:WATR) about 14 months ago, which fortunately proved a sound move.
Good luck and all the best.
