Netlist, Inc. (NASDAQ: NLST) has been the center of attention in the market over the past few sessions and for good reason. At the close of Thursday’s trading session, the stock was trading at just $0.15 per share. By the close of yesterday’s session, it was up to $0.75 per share, and at the moment, it’s soaring higher. However, I’m here to tell you, we’re at the end of this run. Don’t be fooled, this stock is going to fall hard! Today, we’ll talk about:
- Why NLST is soaring;
- why it’s going to fall hard;
- what we’re seeing from the stock today; and
- what we’ll be watching for ahead.
Why NLST Is Soaring
As mentioned above, at the close of the session on Thursday, Netlist was trading at $0.15 per share. So, why is it that it has gained in multiples? It all started when the company announced that the International Trade Commission issued a claim construction order in the case between NLST and SK hynix. The order surrounded the alleged infringement of the company’s patents by SK hynix. In the announcement, the company said that the claim construction order was in its favor, exciting investors and leading the stock on a run for the top.
Why This Run Won’t Last Much Longer
At the end of the day, the news was good, but it wasn’t that good. First and foremost, it takes quite a while for international patent disputes to be resolved. In this case, it could take years for the NLST to see a penny from this dispute, and that’s only if it gets a positive verdict in the international courts.
Thinking about that and looking into the company’s balance sheet, things just aren’t looking good. At the moment, the company is sitting on enough funds to last it through about the next six months, based on the most recent financial statement. Once it runs out of money, it is likely to move forward with a dilutive offering that will take value from shareholders. At the end of the day, the company simply isn’t a financially healthy one!
When you take a look at the most recent earnings report, take a moment to look at revenues, and the story will get even worse. Over the past several consecutive quarters, the company has seen large reductions in revenue, signifying hard times ahead. All in all, if a settlement was announced, it would be great, but chances are that this isn’t going to happen before the company needs to find another way to access funds. Ultimately, the big gains are excitement related and will likely correct relatively soon. So be careful here.
What We’re Seeing From The Stock
One of the first lessons that we learn when we start to dig into the market is that the news leads to moves. In the case of Netlist, the news has led to excitement and the gains are getting out of hand. Nonetheless, those gains are continuing this morning. As is almost always the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (9:01), NLST is trading at $0.98 per share after a gain of $0.23 per share or 30.67% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on NLST. In particular, we’re intereted in following the story surrounding the company’s growth and the eventual correction that will likely send this thing falling like a brick from the Empire State Building. Nonetheless, we’ll continue to keep a close eye on the news and bring it to you as it breaks!
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