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Why Mogu Stock Rocketed 35% Higher -- Then Plunged by Even More!

By Rich Smith – Jul 31, 2020 at 11:34AM

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Volatility is the latest fashion for this Chinese e-commerce apparel company.

What happened

Small-cap stocks can be more volatile than larger ones -- something we're all aware of after the last few months -- but Chinese online fashion and "lifestyle" company Mogu (MOGU -2.49%) is really taking the cake Friday morning.

Mogu opened the trading day up by 21% from Thursday's close, then proceeded to rocket to a total of 35% higher before pivoting and plunging sharply. Indeed, as of 12:11 p.m. EDT, the stock was trading 16% below Thursday's close. At its lowest point of the morning, it was off by 43% from the day's peak.

Yo-yo balanced on a finger

Image source: Getty Images.

So what

Here's the really crazy thing: There appears to be absolutely no reason for those wild swings. There have been no press releases out of Mogu today, there are no fresh articles about it in the press, and there hasn't been a peep about it from any of Wall Street's analysts. No upgrades, no downgrades -- not so much as a change in price target.

Just as it did Thursday, Mogu stock is yo-yo-ing around entirely based on traders' emotions.

Now what

If you're a momentum trader, just here to gamble on a stock, I'm sure that prospect is exciting. But if you're an investor, it's downright disturbing.

This is a company with declining revenues, no profits, and no analysts willing to venture a guess about it delivering pro forma profits (much less GAAP profits) before 2022 at the earliest. Add in an uber-volatile stock price, and the result looks to me like a great way for novice investors to lose money in the stock market, nothing more.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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