Shares of Orbital Energy Group (NASDAQ:OEG) fell as much as 24% in the first hour of trading on June 2. That comes one day after the stock rocketed higher by more than 100%. There’s a reason for all the volatility, but the big takeaway may not be what you think.
Orbital Energy states that it is looking to maximize “shareholder value through the acquisition and development of innovative companies to create a diversified energy infrastructure services platform.” It has divisions tied to renewable power, solar, gas systems, and telecommunications services, among other things. That’s kind of surprising for a company with a $300 million market cap (noting the price action above, this figure was closer to $200 million just a couple of days ago). Keep these facts in the back of your mind.
On June 1, Orbital Energy announced that it had won a four-year contract to provide construction services on a 700-mile-long fiber building project. That news sent the shares sharply higher, as noted above. To be fair, according to Orbital Energy, the deal was inked by recently acquired subsidiary Gibson Technology Services. To that end, it fits with the company’s stated business goals and it is likely to be a pretty big deal for Orbital, given the company’s small size. So investor enthusiasm seems appropriate. But just how much good news did exuberant investors price in here? Judging by the swift price decline today, some on Wall Street think too much.
But step back and ask yourself: What really happened? A tiny company released some good news and investors got excited. One day later they started to take profits. It’s really not unusual at all in the grand scheme of things since it often doesn’t take much to move the share price of small companies. Orbital Energy’s contract win might be very important for the company, but long-term investors really need to ask if it is important enough to justify investing in the tiny stock. That’s particularly true given that bad news could just as easily send the shares plunging even more than they have today. All in, most investors will probably be better off sitting on the sidelines here.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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