What happened
Shares of Cricut (CRCT +1.24%) were up 26.1% in June, according to data provided by S&P Global Market Intelligence. The company only had its initial public offering (IPO) in March, and IPOs are typically volatile soon after going public. So we may just be witnessing that volatility at work for Cricut. That said, a major shareholder significantly boosted its stake in Cricut during June, which likely caused the stock to jump.
So what
According to a filing with the Securities and Exchange Commission (SEC) on June 25, Abdiel Capital now owns almost 22% of Class A shares of Cricut. The firm has been buying the stock regularly in recent weeks. However, it purchased over 850,000 shares from June 23 to June 24. For perspective, the float for Cricut stock is only 16.4 million shares, according to Yahoo Finance. And the average daily-trading volume is less than one million shares. The purchase of that many shares in just two days appears to have driven the stock's June spike.
Image source: Getty Images.
To further substantiate this theory, Cricut stock has already given back most of its June gains. Stock prices, of course, reflect supply and demand. Over longer periods of time, demand for shares is created with things like revenue growth or earnings growth. But for a couple of days, Abdiel Capital acquired a substantial amount of Cricut stock. Its price jumped up as the supply went down. But now things have balanced out, and the price has therefore dropped.
Now what
Predicting an event like this and trying to profit from it would have been impossible as is almost anything in the short term. That's why I and others encourage investors to analyze business fundamentals to predict long-term moves. Cricut is enabling the creative economy with machines that build personalized items. And these kinds of products were in high demand during the past year -- much to Cricut's benefit.
However, anyone looking to buy this IPO stock today needs to determine whether this market is set for sustainable long-term growth or whether it was just temporarily boosted by the COVID-19 pandemic.
You can try to answer this question by looking for third-party market research. For example, according to Expert Market Research, the global handicraft market is expected to grow at an almost 11% compound annual growth rate between now and 2026. But that's just one source. Before you decide to invest, be sure you have sufficient corroboration for the market's long-term prospects.
In time, Cricut's own business results will corroborate or debunk theories about the long-term demand for the company's products. But either way, it's probably a stock to add to your watch list for now.
