What happened
Shares of Longfin Corp. (LFIN +0.00%) cratered on Thursday, continuing a decline set in motion by its removal from the Russell 2000 index on March 27. The company went public in December at $5 per share, then rocketed to over $140 per share after the company announced the acquisition of a blockchain company. The stock was down about 47% at 3:45 p.m. EDT on Thursday, bringing the price below $18 per share.
So what
Longfin was removed from the Russell index soon after being added, with the stock failing to meet the minimum 5% free float requirement. While this was the only real piece of news, Longfin's outrageous valuation and the ongoing decline in cryptocurrency prices are likely playing a role in the stock's collapse.
Image source: Getty Images.
Longfin generated just $28.1 million of revenue on a pro forma basis between Feb. 1 and June 30 last year, and it only expects its blockchain acquisition to account for 5% to 10% of revenue this year. The market capitalization, even after Thursday's plunge, is over $1 billion. That's down from a peak of $7 billion.
The removal from the Russell index may have been the catalyst for this decline, but it wasn't the root cause.
Now what
Longfin is a clear-cut bubble stock with a nonsensical valuation. Even the CEO, speaking to CNBC last year, said that the market cap wasn't justified. Those who didn't listen are paying the price today.
