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Kaixin Auto Stock Drops 40% After Insane Rise Over the Past Week

By Daniel Miller – Oct 20, 2020 at 1:06PM

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Why investors might want to watch this stock from the sidelines.

What happened

Shares of Kaixin Auto Holdings (KXIN), a Chinese financing platform that evolved into a dealership network, were down 40% at 12:54 p.m. EDT on Tuesday as the stock lost some of its recent incredible, yet inexplainable, gains.

So what

Sometimes stocks go up, and sometimes stocks go down -- and sometimes they just do things that make little sense to investors.

KXIN Chart

KXIN data by YCharts.

An inexplainable meteoric rise has been the story for Kaixin's stock over the past few days as it soared from $0.54 at close on Oct. 14 to an Oct. 19 high of $13.40. "There is no change in the status of Kaixin's business operations since the company filed the last 6-K on Aug. 23, 2020, and its dealership business is still in halt," the company said in a statement to MarketWatch.

The comment from Kaixin management was followed with a statement that the price movement was "a surprise." And that comment would lead investors to believe there is no surprise announcement leaking early, otherwise the company would likely issue a "no comment."

row of cars at a dealership

Image source: Getty Images.

Now what

These types of price swings can be dangerous for Main Street investors, and it would be wise to watch this from the sidelines until the dust settles or more information comes to light about the wild changes in trading volume and stock price.

For now, we have to take management at its word that its dealership business is still halted and is being reexamined, and that it still expects a significant drop in second-quarter revenue with little meaningful recovery until the third quarter. There are much safer and stable investments to be found within the automotive industry.

Daniel Miller 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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