Why Shares of Zulily Inc Dropped and Then Popped

Is this meaningful? Or just another movement?

May 14, 2014 at 2:03PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zulily Inc (NASDAQ:ZU) were on a wild ride this morning, opening 10% lower and then surging as much as 14% higher than yesterday's closing price after its lockup period expired today. 

So what: Trading volume soared as insiders were allowed to sell shares for the first time since the flash-sales retailer's IPO six months ago -- nearly five times the average daily volume of shares had been sold by noon today. Over a million shares changed hands at market open, presumably as insiders dumped their holdings, but the stock quickly rallied after that on an apparent short squeeze. With Zulily's short interest at 63%, a majority of the market has been betting on the stock to fall, and those short-sellers were waiting to take advantage of the expected sell-off from the lockup period expiration, as posts on Twitter indicate. Once the market opened, the shorts began to cover their positions and take profits as the stock opened at its lowest point since the IPO.  

Now what: For Zulily shareholders invested for the long-term, today's movement is essentially noise. Short-sellers can take control of a stock and drive day-to-day fluctuations in its price, but ultimately the stock will rise or fall based on the company's underlying profits. Similarly, investors in recent IPOs should be aware of their lockup expiration dates, which generally come six months after the IPO, as the end of a lockup can trigger a sell-off -- though as a one-time event it shouldn't affect the long-term direction of the stock. Even before today's swing, the stock has been highly volatile, spiking in February to over $70 on an earnings beat and then falling to less than $30 this morning. With the stock's sky-high P/E ratio and a huge short interest, about the only thing shareholders are assured of is more double-digit swings like today's.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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