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Why Sgoco Group Stock Is Plummeting 20% Today After an Explosive Rally

By Neha Chamaria – Aug 19, 2021 at 2:00PM

Key Points

  • Sgoco Group shares are cooling off after nearly doubling yesterday.
  • The company is based in China, but that's not what traders are interested in.

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A short squeeze, speculation, and volatility: That best sums up this Chinese stock's move.

What happened

Sgoco Group (SGOC 3.33%) stock is plunging today, and was down 20% as of 1 p.m. EDT. Shares of the conglomerate that's primarily into money lending, property investment, and fintech services have been on a crazy wild ride in recent weeks, nearly doubling in value just yesterday.

So what

Small-cap stocks are typically very volatile, and the volatility can spin out of control if it's a China-based stock in question, like Sgoco Group. U.S.-listed Chinese stocks have been in the news lately for all the wrong reasons, and although Sgoco Group hasn't come under the scanner of Chinese regulators whatsoever, it can't escape a broad-based move in Chinese stocks.

A stressed person looking at a falling stock price chart on a computer screen.

Image source: Getty Images.

In Sgoco Group's case, though, a short squeeze is even more apparent as the stock has lately caught the attention of traders and speculators. As of the end of July, nearly 1 million shares of Sgoco Group were held short versus 0.3 million a month ago. With the stock soaring on Aug. 18, a high volume of short sellers apparently scrambled to exit their positions, bidding the stock even higher. And those who owned shares or opened long positions yesterday must be, unsurprisingly, locking in profits today and driving the stock lower.

Now what

Be wary of betting on Sgoco Group. There's nothing to suggest the stock is even worth investing in: The company filed its last annual report only after receiving a notification from the stock exchange, barely generated $4.3 million in revenue in 2020 that was down 16% from 2019, and reported a big negative gross loss. It's a highly risky stock, and you have multiple reasons to avoid Chinese stocks right now anyway.

Neha Chamaria 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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