What happened
Shares of ZK International (ZKIN 5.45%) rose a dramatic 20% in the first hour of trading before the Chinese steelmaker's stock was halted because of elevated volatility. After a brief pause the stock cooled off a little bit, with the shares up roughly 15% or so at around 11:30 a.m. EDT. The story behind the story is that the company is making some interesting business moves.
So what
ZK International is a steel company, which isn't the type of thing that garners much attention on Wall Street. However, its xSigma subsidiary is a completely different beast. This business unit is delving into the digital world with a platform for digital currency trading that will also support the trading of other digital products. It's even venturing into online gaming. These are hot spaces on Wall Street, and investors are quickly bidding up stocks related to what is still an emerging digital landscape.
Image source: Getty Images.
Today's quick stock price increase, meanwhile, seems to be tied to a report from White Diamond Research, which doubled its price target on the stock from $10 per share to $20. The stock is a strong buy, according to White Diamond. With a roughly $200 million market cap, this is a relatively small company, so it's not shocking that news like this moved the stock. That's doubly true since the main reason for White Diamond's enthusiasm is ZK International's digital push, via its xSigma division, a strategy direction that could easily whip investors into a tizzy given the current market zeitgeist around digital assets.
Now what
Still, most investors should probably steer clear of ZK International stock. It's obviously not trading based on the merits of its steel business right now, and the prospects for its xSigma division are, at best, uncertain. This is one of those cases where the story is, indeed, interesting, but that's partly because it's so unusual. For long-term investors, an interesting and unusual story shouldn't be a good enough reason to rush in and buy a stock. What's appropriate is slowing down and doing a little (perhaps a lot of) extra research, starting by asking why a steel company is even working on a digital strategy like this in the first place.