EnteroMedics (ETRM) Stock: Up 5,400%… Not So Fast!

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EnteroMedics Inc (NASDAQ: ETRM)

EnteroMedics looks like it’s going to have an incredible day today. In fact, many woke up to a pleasant surprise in their trading accounts. On StockTwits, the ETRM stream is filled with people saying “I’m rich!,” “Can I cash out at this price?” and more. However, the truth is that the gains aren’t here to stay. When the opening bell rings, accounts should adjust. Below, we’ll talk about what we’re seeing, why, and what we’ll be watching for with regard to ETRM ahead.





What We’re Seeing From ETRM

As mentioned above, many investors woke up and saw massive gains on EnteroMedics in pre-market trading. After yesterday’s decline of 9.01%, everything is showing that the stock is experiencing massive gains. While that’s not really the case and we will talk about that later, if you look at the stock chart, you’ll see something incredibly impressive. According to the chart, ETRM is trading at $2.28 per share after a gain of 5,407.25% thus far.

The Stock Isn’t Really Climbing

As soon as one of our trading tools alerted us of the gains on ETRM, the CNA Finance team started digging to see exactly what was causing the movement. In this particular case, the gains are proving to be cosmetic. If we do the math, you’ll actually notice that what we’re seeing is a loss. Here’s what’s going on…

EnteroMedics is scheduled to process a 1 for 70 reverse stock split. That means that following the split, this $0.04 stock is worth $2.80 per share. That’s only because every 70 shares is being merged into one. However, investors aren’t usually big fans of reverse splits, and for good reason. These large cosmetic changes generally are the result of some unsavory movements in the rear view. In this particular case, the stock was sinking as the result of massively dilutive financing. As a result, while the stock should be worth $2.80 per share after the split, it’s actually down in a big way, trading at only $2.28 per share.

What We’ll Be Watching Ahead

Moving forward, the CNA Finance team will be keeping a close eye on ETRM. In particular, we’ll be watching to see how investors react to the split once the market does open. We’ll also be watching to see what the company does with regard to growth ahead. However, considering their past, we’re not expecting much. Nonetheless, we’ll be watching the news closely and bringing it to you as it breaks!

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[Image Courtesy of Wikipedia]

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